U.S. Should Worry About 'Morning After' Economic Stimulus Plans (3/3/2008)

Economists should be more worried about "the morning after" the tax-rebate stimulus package and Federal Reserve's interest rate cuts than whether to call the current slowdown a recession, says a University of Central Florida economist.

"Whether or not the slowdown is declared to be officially a recession a year from now doesn't matter for our current situation," said Sean Snaith, director of the UCF Institute for Economic Competitiveness, in his first-quarter national forecast released today.

"The real threat is what lies beyond the current monetary and fiscal stimulus," Snaith said. "The persistence of inflation could require some bitter medicine in the form of a deep recession induced by the Fed. It has the potential to make the impact of the housing correction pale in comparison."

Rate cuts and tax rebates won't offer any real relief until the second half of the year, Snaith said. Until then, the country will continue wrangling with a languishing housing sector, credit market crunch, rising energy prices.

The next president will have to deal with all of those crises and ever-expanding federal deficit, which Snaith estimates could jump up to 140 percent this year -- mainly because of the White House's fiscal stimulus package.

"The deficits will require the attention of a new administration -- some attempt to curtail deficits will be made in part by lowering spending or from troop withdrawals in Iraq," Snaith said. "The other side of the corrective action could entail higher tax rates. This will most likely be the case if a Democrat occupies the Oval Office."

Snaith's forecast covers economic predictions through 2010. His release coincides with this morning's preliminary Gross Domestic Product figures from the Bureau of Economic Analysis

To view Snaith's entire economic forecast, visit www.iec.ucf.edu.

Other highlights include:

• By the end of 2008, Snaith says that the housing hangover should begin to lift. This year will be the worst, with a double digit decline of nearly 17 percent, as developers have severely cut back on projects in the wake of large inventories and with demand hampered by the sub-prime meltdown and precipitous drop in confidence.
• The dollar's seven-year depreciation against major trading partners finally ends this year. And 2009 will be the first year since 2001 that the currency will increase in value.
• Unemployment will peak at 5.2 percent in 2008 before falling back to 4.7 percent by the end of 2010. Job losses in construction and financial services tied to housing continue to add to the structural job losses experienced in the manufacturing and information sectors.

Snaith is the director of the UCF Institute for Economic Competitiveness. He is a national expert in economics, forecasting, market sizing and economic analysis. He authors quarterly reports about the economy. Snaith is also a member of several national forecasting panels, including the Western Blue Chip Economic Forecast panel, the National Association of Business Economics Quarterly Outlook Survey Panel, the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters, Bloomberg U.S. Economic Indicator Survey and USA Today Economic Survey Panel. Blue Chip named him the most accurate forecaster for California in 2006.

The UCF Institute for Economic Competitiveness' mission is to expand public understanding of the economy by convening business leaders, scholars, policy makers, civic groups and media to discuss critical issues.

Note: This story has been adapted from a news release issued by the University of Central Florida

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