Worries Persist Slowing US Economy Could Turn into Recession

By Barry Wood
Washington
05 December 2007

American consumers are being squeezed by higher oil prices, falling home prices and a falling dollar. VOA's Barry Wood reports that some analysts are turning pessimistic about the economy and worrying that hard times lie ahead.

For many Americans the economy is turning sour.

The rising price of gasoline is making the commute to work more expensive.

The long boom in mortgage credit, real estate and home construction has, in many communities, reversed course.

And the once mighty dollar is losing value, boosting the costs of imports.

Ted Truman is a former official at the Treasury Department and the Federal Reserve. He says Americans are beginning to pay for having lived beyond their means. "We've been overconsuming as a country for an extended period of time, to the tune of six percent of GDP [gross domestic product]. That consumption boom is coming to an end."

The U.S. trade deficit has doubled since 2001.

David Hale, an economist in Chicago, foresees a wave of home foreclosures next year because borrowers will not be able to meet their payments. "It's not a huge part of the population. But it's a distinct number. You know, two million people at risk. And it's concentrated more in low income neighborhoods than in high income neighborhoods."

It is not just Americans who are concerned. Thomas Putter is a money manager at Allianz Capital in Germany. He says, "The big worry is that the sub-prime crisis is not contained to sub-prime, but may spread over to other areas like credit card defaults."

But other economists dismiss the skeptics as false prophets of gloom. In the three months ending in September, the U.S. economy grew at a nearly five percent annual rate. Employment is strong and rising.

Surjit Bhalla is an investor based in New Delhi. He disagrees with the notion of a recession. "I don't belong to the camp that thinks the U.S. economy is going into a recession."

Bhalla says even if the U.S. economy slows down, China and India will fill the gap and world growth will continue. "What you have in terms of a world dynamic is a fantastic situation. Vietnam, the developing countries, sub-Saharan Africa, Latin America -- they are all joining in world growth. So I think this is a tremendous time. The world has never, ever witnessed what we are witnessing today."

For most Americans times are still good. But Christmas cheer may be more subdued this year.