Economists Say We're In "Fearsession," Not Recession

Mar 12, 2008 by Jeff Robinson

(KCPW News) The nation is not facing an economic recession, but rather a "fearsession." That's according to economists with Wells Fargo. Regional Managing Director Sterling Jensen says we are not in a recession, because the country hasn't seen a decline in its gross domestic product for two straight quarters yet. He also adds that because everyone is afraid of a looming recession, they've taken steps that could prevent one from happening.

"Businesses, knowing that recession is imminent, have significantly pared inventories," said Jensen. "Households have slowed spending and have boosted their liquid asset holdings. Bond investors have fully priced in a recession, and we're seeing some of the lowest interest rates on U.S. Treasury bonds that we've seen over the last twenty years."

Jensen calls the economic slowdown a mile deep, but only an inch wide, saying although the housing and auto markets collapsed in the fourth quarter of last year, they only account for 7 percent of the GDP.

Economist Kelly Matthews is predicting more houses will be built in Utah in the second half of this year than the second half of last year. In Salt Lake County, he predicts the federal stimulus package along with lower housing prices will turn the housing slump around.

"The combined decline of the 17 percent by year end average sales prices is probably good enough in order to begin to solve the problem of the overhang of housing," said Matthews.

Financial institutions are expecting the Federal Reserve to cut the federal funds rate next week, which results in lower borrowing rates for consumers and businesses. But Matthews says that could result in the value of the dollar weakening even more and negate the effect of lowering the rate to begin with.

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