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US forecast: Can consumers rescue the new year?

US economic growth will be within a forecasting error of recession for the next three quarters as the effective cost of capital remains high.
The US economy is on the brink of recession. We now expect economic growth to average near 1% for the next three quarters the fourth quarter of 2007 through the second quarter of 2008. This is well within the forecasting error of recession, despite the Federal Reserve's recent rate cuts.

The housing decline will have its biggest negative impact during this period, and orders data suggest slower capital spending. To a large extent, however, the distinction is more semantic than real. The slowdown will feel like a recession to most people.

The two sectors keeping the economy out of recession are foreign trade and consumer spending. The continued growth in the rest of the...
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