Recent economic data

Let’s take a look at some of the recent numbers. First, preliminary third-quarter U.S. gross domestic product (GDP) growth of 3.9 percent hardly looks recessionary.

The standard rule of thumb for defining a recession is two consecutive quarters of negative GDP growth. Of course, there is some wiggle room in that definition, and in the U.S., the privilege of labeling an economic downturn a recession has fallen onto the shoulders of the National Bureau of Economic Research (NBER) http://www.nber.org.

The third-quarter GDP data follows a second-quarter reading of 3.8 percent and a first quarter reading of 0.6 percent. However, the International Monetary Fund recently downgraded its U.S. GDP forecasts for both 2007 and 2008, cutting this year’s overall forecast to 1.9 percent and predicting 2008’s final number to be 1.9 percent as well.

Paul Kasriel, director of economic research at Northern Trust Company, is forecasting 1.7-percent GDP growth from the fourth quarter of 2007 to the fourth quarter of 2008.

“But the risk is to the downside,” he says.

Kasriel is one of the economists who believe the U.S. economy faces a number of critical risks ahead. Consumer spending, which represents about two-thirds of the overall economy, is one of the main engines of growth in the U.S. It is also precisely where Kasriel sees problems.

“There is a very definite potential for recession,” Kasriel says. “We are starting to see the housing recession spreading to the consumer-spending sector. Also, in 2008 I think state and local government spending will be restrained because of lower tax revenues.”

However, Diane Swonk, chief economist at Mesirow Financial, has a much more upbeat outlook.

“After a slow start and a slow end to 2007, I think we will see a reacceleration of growth in the second quarter of 2008,” she says. “That is when the effect of recent Fed easing will kick in.”

Swonk is forecasting overall 2008 GDP growth around 2.5-2.75 percent. She does, however, see a drop in the fourth quarter of 2007 to 1.5 percent.