Weighing on growth is the declining housing market and cuts in production by domestic auto producers. These industries are now laying off workers and are responsible for the lackluster employment gains the economy has seen recently. So far, job gains outside of housing and manufacturing remain steadfast, but this bears close scrutiny.
“We think that housing will find a floor and that the economy will expand at slightly below its long-term rate of growth at about 3 percent in 2007” states Steve Graham, vice president of market analysis for FTR. Growth will be fueled by business investment in equipment and exports. Companies still have solid balance sheets; and due to a fairly tight labor market, there continues to be a need to invest in productivity enhancing equipment.
Graham adds that “we should see healthy exports, aided by the falling dollar. The global economy is still experiencing strong broadly based growth. However, there is a significant danger that secondary effects from housing and the slowing auto sector could spill over to the wider economy. And if businesses in other industries respond to the weakening activity by curtailing their own investment and hiring plans, the economy could devolve into recession.”
FTR Associates now believes that the chances of recession, most likely in the first half of 2007, is one in three – uncomfortably high, but not certain. Even if the country avoids recession, growth rates will seem weak compared to past years, and there may be a bump or two in the road in 2007.
FTR Associates, located in Nashville, Ind., has been a leader in transportation forecasting for nearly 20 years.