In the Fall 2007 T. Rowe Price Report newsletter, the firm's chief economist, Alan Levenson, is calling for a "growth recession" as a result of the weak housing market. The article describes a growth recession as one in which:
"output and employment grow, but not quickly enough to prevent the unemployment rate from rising. That would mean real gross domestic product (GDP) growth of roughly 2%, a modest diminution of inflation pressures, and flat corporate profits through the end of 2008."
T. Rowe Price (TROW) believes a second phase of new construction cutbacks will be felt over the next 12 months. A result of these cutbacks will be to:
reduce real GDP growth by roughly 0.6% in the year ending June 2008, compared with a full percentage point drag over the four quarters ended in June 2007.
If T. Rowe Price's economist is correct, there will likely be more equity volatilty in the near term.
A "Growth Recession" Likely Fallout of Credit Downturn (pdf)
T. Rowe Price Report
By: Alan Levenson