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.
Source:
A "Growth Recession" Likely Fallout of Credit Downturn (pdf)
T. Rowe Price Report
By: Alan Levenson
Fall 2007
http://www.troweprice.com/gcFiles/pdf/04779-Fall-yr07_final.pdf?scn=2007&rfpgid=7949&ft=GNL_CTT
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