The U.S. economy is slowly sliding into a recession, says former Reagan adviser Martin Feldstein, now a Harvard professor.
Feldstein might know. He is also president of the National Bureau of Economic Research (NBER), the group that officially calls recessions, although usually well after they are over.
Feldstein said this week that the housing market is not improving, and it may even worsen.
He also noted that this year and next year are not going to be stellar years for the U.S. economy.
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"This is a weakening economy," Feldstein told reporters in New York.
"If you compare where the economy is now, with where it began at the beginning of the year, just about every indicator is down.”
Other economists and market observers view the remarks as a sober, realistic appraisal of the short-term economic future.
"When these comments come from the mouth of Martin Feldstein, they must be all too real. This is very bad news,” says Peter S. Cohan, a professor of business at Babson College.
Feldstein has been steadily ratcheting up his negative assessments of the market, going back to a speech given in Florida in March in which he noted that there is a "lack of confidence” in the U.S. economy, and, that while inflation had been basically constrained, "you wonder how long that is going to last.”
Seventy percent of U.S. gross domestic product (GDP) is linked to consumer spending, and a dip in consumer confidence, coupled with rising prices, could be devastating.
The series of interest rate cuts from 5.25 percent to 2 percent has actually worsened the problem, rather than alleviated it, Cohan says.
"The Fed’s lower interest rate cuts are feeding into a rise in the price of oil because oil is denominated in dollars and lower interest rates lead to a drop in the value of the dollar,” he says.
The U.S. economic slowdown may last into next year, according to the International Monetary Fund’s April 2008 report.
There are pockets of economic strength, though, amidst the carnage of the housing market and credit crunch. That could fuel another boom later next year.
The high tech and health care industries are "on the upswing” and have been for at least two years now, says William E.J. Skelly, chairman of the non-profit Turnaround Management Association.
"The technology sector had gone through its recession at the beginning of this decade, and there has since been consolidation and stabilization in that sector,” Skelly tells MoneyNews.
It doesn’t hurt that many companies have been hoarding cash in advance of the slowdown, which has kept technology budgets afloat — a lesson learned the hard way after the 2001 market crash.
"The demand for technology at all levels of business has been increasing significantly,” he says.
© NewsMax 2008. All rights reserved.
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