A Recession? You Bet — but It’ll Probably Be Short and Mild

Some parts of the country will get hit a lot harder than others, and it will take them longer to recover.
By Jerome Idaszak, Associate Editor, The Kiplinger Letter

We’re forecasting a mild, short contraction ending well before the year is out. With housing and lending industries hurting, factory production and retail sales falling, employment shrinking and consumer incomes slowing, there’s no question that a recession is under way. But relief is already in sight.

Still, some parts of the country will be hit a lot harder than others. In states that led the housing boom, including Florida, Nevada and Arizona, as well as Southern California, thousands of jobs in construction and real estate services are disappearing as home values fall. Frost Belt states are in pain, too, especially Michigan and Ohio because of troubles in the beleaguered auto manufacturing industry.

But look for a turnaround soon, with expansion returning in the second half of this year. The fiscal stimulus from Washington and the accumulated interest rate cuts by the Federal Reserve plus other moves will translate into a 2.5% growth in the economy for the third quarter and a similar pace in the fourth quarter. Next year, though, we expect a tepid 2% or so gain in gross national product, and it may feel even slower to some. John Silvia, chief economist with Wachovia Corp., says, “We’re still working through the housing crisis, and we’ve got credit problems to deal with.”