Pessimistic respondents to last week’s Feedback Poll squeezed ahead of their more hopeful counterparts, with those believing there’s a better-than-50% chance of a near-term recession logging in at 53%. Commentator Nariman Behravesh, chief economist of Lexington, MA-based Global Insights, does not view himself as inordinately optimistic. (In fact, he points out, his firm “led the consensus” in predicting the housing downturn.) But he did express mild surprise at the reaction to the question, and a realistic optimism does poke through as he weighs in on how deep and wide the current post-credit crisis correction will be. Here’s why:

“People may be overreacting a bit to the financial turmoil. It is scary, but the reality is that it’s affecting only certain parts of the economy. It doesn’t seem to be having a broader impact. Yet.

“Clearly, it will make the housing recession far deeper than anyone thought it would be. But so far, the good news is that it hasn’t spread to the consumer in any big way, and until that happens, the chance of a recession is less than 50/50.

“The big issue here is jobs-growth outside of manufacturing and housing, namely, in the service sectors. So far, the service sectors have been pretty much immune from this very nasty housing downturn, and from that perspective, unless those sectors do become infected, I don’t see a problem. It could happen. Businesses could become much more cautious; hiring could become much more limited; and job growth, rather than being 100,000 a month, could be only a few thousand. If all that happens, then there’s no question that the outlook would turn worse. But there’s no reason to think it necessarily will happen.

“In terms of when it might blow over, there are two or three parts to this. Certainly the financial crisis has largely blown over. That’s not to say we’re back to normal. Risk spreads are higher than they were six months ago, although they were extremely low at that point. But the panic that seemed to grip the financial markets in early August seems to have passed.

“However, there are residual effects, and the biggest will continue to be on housing. That’s the epicenter of this shock. Credit conditions have tightened, and it’s a lot harder for households of all kinds–even well-qualified households–to get mortgages. And if they do get mortgages they’re more expensive. So, we can expect home sales to keep going down along with starts.

“Overall, we’re still looking at a fairly weak period, at least through the first half of next year. This year will come in at 2% growth, maybe 1.8. The third quarter could come in reasonably strong, maybe as strong as 3.5%. But the fourth quarter will be fairly weak, maybe 1.5%. We had a lot of momentum going into this quarter, but toward the end of it we’ll see it sputter. For ’08, we’re looking at growth of around 2% for the year, although the first half will be more like 1.5%.

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