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An Economy's Mixed Message on Suffering

Big banks have been hit hard by write-downs from the ongoing credit crisis, including Citigroup.
Big banks have been hit hard by write-downs from the ongoing credit crisis, including Citigroup. (By Mario Tama -- Getty Images)
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Much of the discussion over the economy in recent weeks has focused on the possibility that the United States will experience a recession this year. That is ultimately a technical designation that a panel of economists will decide years from now. What really matters is how widely the pain from the crisis in housing and financial markets spreads.

Some economists see tentative, worrying signs that the damage is spreading to states and industries now unaffected.

"You get the sense that things are starting to slow in other places," Zandi said. "Airlines are complaining about travel, retailers are on high alert. In areas that are affected by the problems on Wall Street, you are starting to see the effect in legal services, accounting, advertising, catering."

If those signs turn into broad weaknesses, it would mirror the late 1980s, when there were "rolling recessions," in which one region or industry after another suffered from weak economic conditions. "The economy never went into recession, but different sectors did, with different regions hit at different times," said Naroff, who also is president of Naroff Economic Advisors. "It is not unusual at all."

"At this point, I think the preponderance of probability is on a U.S. recession this year, and there is the possibility, though not yet at all the probability, that a recession could prove long and severe if a vicious cycle of credit problems cause economic problems, cause further credit problems, exacerbate the economic problems," Lawrence Summers, the former Treasury secretary, said in testimony before the Joint Economic Committee yesterday.

But other economists predict the pain will be largely confined to Wall Street mavens, over-extended homeowners who took on loans they could not afford, construction workers and real estate brokers.

Momentum has been building in Congress for a fiscal stimulus package.

Fed Chairman Ben S. Bernanke has told congressional leaders that he thinks a stimulus plan could make sense, though he seeks to avoid endorsing a specific plan. Bernanke is to testify today before the House Budget Committee and will probably try to deflect questions seeking his view on specific tax and spending bills, as is his practice.

In the hearing yesterday, Sen. Charles E. Schumer (D-N.Y.) said Bernanke "said that while he wasn't going to endorse a specific plan, if an economic stimulus package was properly designed and enacted so that it enters the economy quickly, it could have a very positive effect on the economy."


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