Bureau of Business Research


Date of this Version



Published in Business in Nebraska, Volume 62, No. 689, December 2007. Presented by the UNL Bureau of Business Research. Used by permission.


The crisis in the housing and financial sectors has led to a dramatic slowdown in U.S. economic growth. Fourth quarter GDP growth and job growth are expected to be anemic and the economy may fall into recession in 2008. Indeed, several of the dozen members of the Nebraska Business Forecast Council do believe that the U.S. economy will likely slip into recession during 2008. However, the overall consensus of the Council is that the U.S. economy will avoid a recession. Economic growth will be slow in the first three quarters of 2008 before recovering in late 2008 and 2009.

The reasons for concern about the economy are well understood. There has been a decline in both new home construction and the sales of existing homes. Housing permits and starts are each down by approximately 25% in 2007. This decline has had a ripple effect not only in construction but in related industries such as real estate, and segments of manufacturing and finance.

Rising mortgage delinquencies, particularly for sub-prime mortgages have lead to stress at many financial institutions. This has led some financial institutions to cut back on lending. Recent evidence suggests that weakness in selected industries and these concerns about credit may have slowed consumer spending and lead to a decline in manufacturing activity. Rising oil and gasoline prices also have limited consumer income available to spend on other goods and services. The combined force of all of these factors is what has caused economic growth to slow and raised legitimate concerns that the economy could fall into recession.

However, there is also a case to be made for continued economic growth in 2008. First the housing crisis, while significant, is limited to only a portion of the economy. This may explain why total employment has continued to grow through the end of 2007, at least according to preliminary estimates. Secondly, a weak U.S. dollar has lead to a substantial improvement in exports, and an overall improvement in the nation’s trade deficit, which supports growth. The third and final reason is the Federal Reserve Bank has shown a willingness to cut interest rates, or take other actions to improve liquidity. Not everyone has been satisfied with the pace of the Fed’s actions but the institution stands willing to make further cuts in short-term interest rates in 2008.

Nationwide in 2007, non-farm job growth is thought to have expanded by 1.2 percent. Job growth is expected to slow to 0.9 percent in 2008 before bouncing back to 1.7 percent growth in 2009 as the economic growth accelerates again. Growth in real (inflation-adjusted) gross domestic product (GDP) is expected to have been 2.5 percent in 2007. The rate of growth will dip in the first half of 2008. Overall real GDP growth is expected to be 2.2 percent in 2008. Growth in real gross domestic product will improve in 2009 as the economy recovers, to 3.1 percent.

As noted earlier, there is a significant chance, approaching 40 percent that the economy will fall into recession in 2008. If this occurs, job growth is expected to be negative during 2008. This is not the Council’s expectation but it is a possibility.