Sunday, August 28, 2011

Moody's Zandi: Stocks Could Throw US Back Into Recession

The United States is teetering on the edge of recession and further drops in stock prices could prove to be the tipping point, experts say.

So far, the country remains in growth mode, but economists keep slashing their forecasts, which is leaving many worried that the economy is slowing to stall speed.

"I think we're right on the edge," says Mark Zandi of Moody's, according to CNBC.

"I think confidence is extraordinarily fragile, and consumer and businesses are frozen in place. The numbers going into Q3 are tracking less than 1 percent. It's still early but the debt ceiling drama, the S&P downgrade and what's going on in Europe have done serious damage on the collective psyche."

Consumer confidence remains weak, and further stock-market declines could damage confidence even further and send the economy shrinking even though companies aren't announcing widespread layoffs.

"We haven't seen deterioration in jobless claims," which is positive, says Credit Suisse economist Jonathan Basile, CNBC adds.

However, the expectations from the latest University of Michigan consumer sentiment survey shows a big jump in unemployment expectations to 46 percent from 31 percent.

"When you get really sharp moves, that's always like a red flag," Basile says.

Even talk of recession may be enough to spook consumers some economists say, including David Kelly, chief market strategist for J.P. Morgan Funds.

"Overall, the chorus of economists and strategists predicting recession has grown louder in recent days and the withering impact of these pronouncements on confidence is sadly boosting the chances that they could be right," according to Kelly, MarketWatch reports.

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