"Consumer spending in 2008 will slow to a 1.8 percent pace, but it could be below 1 percent," forecasts Scott Anderson, chief economist at Wells Fargo in Minneapolis. "The first half will feel like a recession for consumers."
It already feels like that in Arizona, says Professor Hoffman at ASU. "We lead the nation in employment growth – some 3 percent more people come here each year," he notes. "But our spending patterns this year are really negative, the worst in 15 years. For example, we're seeing automobile sales off by double digits."
Unlike some previous years, the economy will have little momentum leading into 2008. Retail analysts believe holiday sales rose by no more than 4 percent, one of the slowest rate increases since 2002.
As was the case this year, one of the strongest head winds buffeting the economy will be problems in the housing market, economists say. Sales of new homes are expected to continue to fall as builders try to shed inventory. Few forecasters expect to see home prices rise, or even stabilize, next year. Instead, estimates of a further decline in value range from 3 to 6 percent.
"In some places, such as southern California, there will be double-digit declines for the second year in a row," says Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. "If the national trends showed housing prices falling 8 to 10 percent, that would be enough to send us into a recession."
The manufacturing segment of the economy is already in a recession, says Daniel Meckstroth, chief economist at Manufacturers Alliance/MAPI in Arlington, Va. Manufacturing production will fall 2 percent in the last quarter of 2007, he estimates. "Auto sales are poor. Wood products, furniture, glass, hardware are all declining, and I think there is now a snowballing on the downside that is dragging down other markets."
Dr. Meckstroth blames the housing collapse, near-record oil prices, the credit crunch, and slowing employment trends.
"One or two of these would not cause a recession, but the combination of all of them does it," he says.