Economist Tells ACA Economy to Strengthen in Second Half

The economy won’t enter a recession, though growth will remain sluggish into 2008 as the housing and manufacturing markets shake out problems, Ken Mayland, president of ClearView Economics, told the ACA International Convention & Expo in Chicago yesterday. Mayland, an award-winning economist, was called the nation’s most accurate forecaster by Business Week last December.

Mayland was upbeat about the economy while acknowledging there will be some bumps in the path going into 2008. One bright spot is occurring this summer, he said, as the manufacturing sector begins pulling out of a major slow down.

The housing market is spotty and home prices nationwide dropped in the first half of 2007 for the first time since World War II, says Mayland. Prices will continue to be shaky for the second half of 2007, finishing down 5 percent to 10 percent depending on the region. That means the market will have given up the gains posted in 2006. Once the current slowdown ends in 2008, housing prices will move upward, as they have in the post-World War II era, said Mayland.

“We are seeing the corrections behind us. The housing correction will go on for two more quarters. But the drag is lessening,” says Mayland.

The media has exaggerated the impact of the cratering of the subprime housing market, as only about 1 percent of homeowners are directly affected, he said. We are now seeing mortgage lenders restricting or eliminating the no-down payment and interest-only loan programs that imploded in the last year or so. “Probably the most important result of the subprime blow up is tighter underwriting standards,” said Mayland.

Maynard said that Gross Domestic Product will grow about 3 percent in the second quarter after growing less than 1 percent in the first quarter. The Commerce Department reported Friday that GDP growth in the second quarter was 3.4 percent.  The GDP should be back to 3 percent to 3.25 percent growth rate going into 2008, Mayland also said. The strengthening economy coupled with a 4.5 percent unemployment rate could lead to inflationary pressures, and that would drive the Federal Reserve to raise interest rates. That concerns Mayland because higher rates typically lead to a recession.