Posted on 09/08/2006 10:57:03 AM PDT by Hydroshock
NEW YORK (Reuters) - Investment bank HSBC has revised downward its forecast for 2007 economic growth and cautioned that the risk of an outright recession is growing as a retreat in housing threatens household balance sheets.
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The company argues that while corporate profits have remained sky-high, the incomes of most Americans have effectively fallen over the last 18 months.
That, say economists Stephen King and Ian Morris, could be a recipe for hard times in an economy that relies on consumers for over two-thirds of its strength.
"Never before have households been so hard hit at a time companies are doing so well," the two economists said in a research note to clients. "So it's likely that the U.S. could slow down quite a long way."
They now see gross domestic product expanding just 1.9 percent next year, down from an earlier forecast of 2.6 percent and from an expected rate of growth around 3.5 percent for 2006.
Making things worse, the bank says, a mammoth budget deficit means the U.S. government has "less room to maneuver" if the economy does skid off track.
In the last recession, a massive round of tax cuts and a super-loose monetary policy helped the economy get a second wind. Americans will have no such luck this time around, King and Morris warn.
See post 20. They were predicting a recession and housing bubble to burst back in July 2004. Boy, did they nail it.
How is this "talking down the economy?" Only an idiot would think that economies always grow and that recessions are avoidable. Like it or not the business cycle is here to stay. A recession may or may not be imminent. If it is, then look at it as an investment oppurtunity rather than a negative.
Who knows, but they have been doing it for several years now. One of these days they may be 'right'.
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I am not 100% certain that consumers would reduce their spending if their home values fell.
The wealth effect is dubious at best.
The collpase in the stock market in 2000-2002 didnt reduce consumer spending one bit
Check out Hydro's posting history & get back to me. Incessant doom & gloom prognostication. The definition of "talking down the economy".
I am well aware of business cycles, btw. Thanks.
Oil prices are dropping and interest rates are creeping back down. That will give the economy another shot in the arm.
Bush's fault!
So just because the econmetric expectations of the US don't fit HSBC's rosy projected future we'er in danger of a recession? Please ....
It won't. The worst case will happen is consumers may have to use more expensive debt like credit cards to finance their spending. And that probably isn't the case though because Americans have still accumulated an enormous amount of equity in their homes and a small decline is not going to substantially change that.
"Oil prices are dropping and interest rates are creeping back down. That will give the economy another shot in the arm."
That's exactly right. I don't know why there is so much doom and gloom about the housing market. By historical standards, a 7% or 8% 15 year or 30 year mortgage is still pretty darn low. Back in 1996 when we bought our first home we financed at 7.75% and everyone was telling us we got a heck of a deal. BTW that was during the glory of the Clinton years.
"That could cause economic growth to slow to 2% by the second half of 2005 from 4% now, he predicts in a report called The U.S. Housing Bubble."
Get them with their own words. A perfect retort. Thanks.
Same in the bay area, but then no one is buying, either.
Its weird, prices shot up over the past year & a half for no apparent reason, and now owners are holding out for top dollar and taking their homes off the market rather than drop the price.
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