Things will look better by mid-2008, expert says

The slumping U.S. economy will recover by mid-2008 as energy prices moderate and credit markets stabilize, a California economist said Thursday.

A credit squeeze triggered by rising mortgage defaults is starting to unwind. That, with an expected gradual decline in energy prices early next year, should set the stage for a recovery, said Gary Schlossberg, senior economist for San Francisco-based Wells Capital Management. He gave the keynote address for the Southern Colorado Economic Forum at the Antlers Hilton hotel, attended by more than 500 people.

“Right now the U.S. economy is fighting a three-front war with high energy prices, the housing slump and a credit squeeze,” Schlossberg said. “The economy is slumping, but not breaking.”

Schlossberg forecast sluggish economic growth of less than 2 percent for the next six months or so, followed later next year by a return to a healthier growth rate of about 3 percent that will be helped along by expected interest rate cuts totaling 1 percent.

Rising energy prices, slumping housing markets and credit crunches have triggered past recessions. “Despite all (those) challenges, the economy’s ability to grow has been fairly remarkable,” he said, mostly a result of keeping inflation under control.

Increasing global competition has prevented many businesses from passing higher energy costs along to customers by raising prices of their products, which Schlossberg said has kept consumer purchasing power intact and kept the U.S. economy from slipping into a recession.

A declining housing market is cutting U.S. economic growth by 1 percent, hurting not only the construction industry but also the retail and finance industries, Schlossberg said. Sharp declines in housing sales and prices are not likely in most cities, he said.

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