White House Revises Economic Forecast Downward The White House revised its rosy economic forecast downward Thursday, citing a more significant housing slump than was previously predicted. But the Bush administration still says there will be growth in the economy in 2008. Are predictions of a recession overblown?
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Robert Siegel talks with economists on 'All Things Considered'

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White House Revises Economic Forecast Downward

Robert Siegel talks with economists on 'All Things Considered'

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  • <iframe src="https://www.npr.org/player/embed/16747701/16747686" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

Quick: How is the U.S. economy doing? Well, growth figures for this summer came out today, and here's a surprise. Just as the value of your house was sinking, just as the Dow was bouncing up and down like a SuperBall, economic growth was 4.9 percent. Those were the good old days. So why did the chief White House economist, Edward Lazear, revise his forecast for next year's growth downward from 3.1 percent to 2.7?

Dr. EDWARD LAZEAR (White House Chief Economist): The first reason is as a result of having received some revisions in the data from the past few years, we found that our growth rate over the past few years was somewhat lower than we thought it was, so that affects our estimates of productivity as we go forward. And the second thing that we have is the housing market - the decline there has been more pronounced than we've forecast at the time that we were doing our mid-session review.

SIEGEL: But Lazear and the White House's Council of Economic Advisers still foresee 2.7 percent growth, which is a more robust economy than some other forecasters told us about today. Among them: Diane Swonk, the chief economist at Mesirow Financial in Chicago.

Ms. DIANE SWONK (Senior Managing Director and Chief Economist, Mesirow Financial): It's going to be pretty rough-going and a lot of turbulent turmoil in the first half of the year. But by the second half, we'll be keeping our head above water, which is the most important thing. The last thing you want to do is take the consumer underwater. And on that, we'll still have our head above water.

SIEGEL: Important bottom line here, you're looking at growth. You're not looking at a recession in 2008.

Ms. SWONK: No, it's easy to skirt recession. I think one of the important issues, though, is while we talk about this in the broader context is what an economist calls recession and what most people feel as a recession are probably two different things - the dirt is in the details. And what we've seen in the 2000s is unlike the 1990s, where we actually saw some closing of the income gap at the end of the decade, the 2000s have been a - further widening of the income gaps. So more and more of consumer spending is really being accounted for by the very top echelon of income earners, while many middleclass income -households are seeing their wages stagnate.

SIEGEL: But Juli Neimann, who's an analyst at Smith, Moore & Company in St. Louis, is more pessimistic than Diane Swonk. She thinks growth next year will be just 1 percent. And those more upbeat numbers over at the White House?

Ms. JULI NEIMANN (Executive Vice President for Research and Portfolio Management, Smith, Moore & Company): It is wonderfully optimistic, but it's also an election year.

SIEGEL: So you think those are politically nice numbers to put out, not a little bit rosy by your standards.

Ms. NEIMANN: Certainly a little rosy by anybody's standards is what we're looking at here, simply because we have to be aware of the fact that there's a confidence factor out there.

SIEGEL: Lawrence Summers of Harvard, the former Treasury secretary, says all forecasts deal in probabilities, not certainties. But his take on 2008 is not sanguine.

Professor LAWRENCE SUMMERS (Former U.S. Treasury Secretary): At this point, I would say that the odds are probably better than 50/50, that the economy will experience a recession. The combination of tremendous carnage in the housing sector, the very substantial financial problems that are likely to impair lending and the flow of credit, the losses in real incomes that come from the rise in the price of oil and the fall of the value of the dollar, I think, will all operate to slow the American consumer. And it's been the consumer who's been driving the economy for some time now.

SIEGEL: At the moment, do you see any greater range of forecast for the year ahead than our typical? That is are we at a particularly uncertain moment when the various probabilistic forecasts for 2008 are all over the lot or is it always this way?

Mr. SUMMERS: I think they're probably using somewhat wider dispersion of views than as usual because some of us think a recession is really a likely prospect and others still think it's going to be business as usual. And I think even those whose forecasts and best guesses are clustered, I think would today entertain a much wider range of possibilities. So I think for anybody planning their life out there, I think the degree of uncertainty about where the economy is going to be 12 months hence is probably is great as it's been any time since the period right after 9/11.

SIEGEL: It's Lawrence Summers, who was secretary of the treasury under President Clinton and who was the most pessimistic of the economists we heard from today.

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