October 4, 2011 / 9:00 PM / 7 years ago

Economists see new recession increasingly likely

WASHINGTON (Reuters) - The chances of a new U.S. recession are rising rapidly as employment and housing remain depressed and Europe’s debt crisis threatens to spill over, according to a number of prominent economists.

Federal Reserve Chairman Ben Bernanke on Tuesday described the recovery as “close to faltering,” economists at Goldman Sachs said the United States is on “the edge” of recession, and forecasters at the Economic Cycle Research Institute said the country’s economy was “tipping” into another downturn.

Bernanke delivered the warning in testimony to the Joint Economic Committee of Congress, saying the Fed — the U.S. central bank — is prepared to do more to support the recovery.

Economists at Goldman Sachs lowered their forecast for U.S. economic growth in the first quarter of next year to a paltry 0.5 percent, citing Europe’s ongoing debt crisis as a possible catalyst for a U.S. slump.

“The European crisis threatens U.S. economic growth via tighter financial conditions, reduced credit availability and weaker growth of U.S. exports to the region,” said Andrew Tilton, economist at Goldman Sachs. “This impact is likely to slow the U.S. economy to the edge of recession by early 2012.”

On Friday, the Economic Cycle Research Institute, a business cycle forecasting firm, argued that the economy was already past the point of no return, as was the ability of policymakers to help.

“The most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not ‘soft landings’,” the group said in a report.

For many Americans, the economy never felt as if it had recovered at all. Incomes have remained stagnant while a slump in housing that began more than five years ago shows no sign of letting up.

Growth in the U.S. economy, the world’s largest, averaged less than 1 percent in the first half of the year, and the country’s unemployment rate has hovered just above 9 percent for several months. Long-term joblessness is at a record, despite unprecedented monetary easing by the Federal Reserve.

The Conference Board, an industry group, recently argued the chances of recession, while still below 50-50, have risen in recent months.

“There is a growing risk that sustained weak confidence could put downward pressure on demand and business activity, causing the economy to potentially dip into recession,” said Ken Goldstein, an economist at the firm.

Editing by James Dalgleish

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