The nation's economy will be so sluggish well into next year that any major hiccup could tip it into recession, UCLA's latest economic forecast predicts.
The end of easy credit and a further decline in home construction are sending the economy into a "near-recession," with growth hovering at just above 1% through the first three months of 2008, according to the UCLA Anderson Forecast to be released today.
The forecast presents a gloomier outlook for jobs and the housing market. The nation's unemployment rate will rise to 5.2% by mid-2008, up from the current 4.6%.
And home values will fall 10% to 15% from their peaks, the forecast says, meaning that sliding prices have yet to hit bottom.
"The small recent minimal declines represent not the end, but rather the beginning of what will be a very painful decline," David Shulman, author of the forecast, said in the report, referring to home prices.
Still, UCLA's prognosticators say the economy should narrowly avoid a formal recession -- that is, two consecutive quarters of negative growth. But analysts indicated that with economic currents shifting rapidly, there's no guarantee of a clean getaway.
"This is very touch-and-go," Shulman said. "When the economy slows to a very low rate of growth, it doesn't take much to tip you into recession."
Even a recessionary near miss, however, would be little consolation for businesses already pinched by the ripple effects of the troubled housing and credit markets.
Automakers have said demand for pickup trucks is weakening. Lumber mills are churning less wood. Mortgage companies are giving workers their walking papers.
Even the sales of office supplies -- viewed by some as an indicator of where the economy is headed -- are off, according to Pasadena-based Avery Dennison Corp.
"Short-term economic conditions are challenging," Avery's chief financial officer, Daniel R. O'Bryant, told analysts this week.
"We do see customers behaving skittishly. I talked to one last Friday in Hagerstown who said customers have gone from ordering with optimism to ordering very carefully and not taking any inventory on that they don't have to. So we do see customers being cautious right now."
UCLA forecasters said their report took into account the summer's bountiful crop of grim financial news, including rising mortgage defaults as borrowers with adjustable-rate loans struggle to make escalating payments.
