RandomGuy
09-08-2006, 11:30 AM
Risk of U.S. recession growingNEW 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.
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.
For what it is worth.
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.
For what it is worth.