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IRVINE, CA-”A painful, near-recession” is on the horizon, but a full-blown downturn will be narrowly avoided, according to Dr. Anil Puri, dean of Cal State Fullerton’s College of Business and Economics. Speaking to an audience of roughly 850 attendees at the Orange County Business Council’s (OCBC) annual Economic Forecast Conference yesterday, Puri outlined the hard, cold facts facing the national and local economy.

Puri said there is talk of a “superfund” bailout to the housing crisis, but noted it would be a mistake to go in that direction. “What we need is time, not a superfund to bail out the system. It will take at least a year, maybe longer, to get [the housing market] back to normal.”

But don’t expect normal conditions to resemble the normal of recent years, and say goodbye to the risky loan vehicles that precipitated the summer’s credit crunch. The new normal will be one with much tighter underwriting practices and more money down, noted Puri.

Until the recovery, expect more bad news in the short term. Record consumer spending of recent years fueled the economic boom, with refinancing of mortgages giving consumers an added economic boost. Now, it’s time to pay the piper, as those refis are coming due, noted Puri. “September had the highest ever resetting [of mortgages] with $31 billion. [Resets] will stay at that level through the middle of 08,” he added.

According to the economic forecast, consumer spending “has remained relatively strong, rising by an average of 3.1% [on a year-over-year basis] during the first half of 2007.” So far, the weakening housing market has not impacted spending. The forecast points to a robust 6.4% increase in income growth as bolstering consumer habits. “However, as home values decelerate or even decline from their high levels, we expect the current housing correction to have a significant adverse impact on consumer spending over the next six to 18 months.”

The report points to numerous negative factors impacting the economy. The housing market is chief among them. Factors within housing to monitor will be: the subprime market, foreclosures, tighter lending practices and liquidity issues, which could cause further spillover into the greater economy. On the positive side, the report cites “strong global growth, low interest rates, higher export growth [buoyed by a weakening dollar]” and healthy corporate balance sheets.

As for the recession talk, Puri picked up recent feedback from business leaders through the Orange County Business Expectations Survey conducted during the week of Sept. 24 through Oct. 1, with 101 business executives responding. Respondents were asked the probability of a recession in the next 18 months and they were more pessimistic than Puri. Roughly 60% of those responding rate the chance of a recession at 50% or higher, with 39.6% predicting a less than 50% chance of a recession.

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