Economist fears 'nasty' recession headed our way this year

WASHINGTON -- The USA will likely sink into recession in 2008, and it could be "nasty" if policymakers don't act swiftly, according to a prominent economist.

"Unfortunately, I think that there is a better-than-even chance that we are headed into a recession in 2008," Martin Feldstein, an economics professor at Harvard University and president of the National Bureau of Economic Research (NBER), told USA TODAY Tuesday.

Feldstein isn't the only economist betting on a recession — and there are plenty of others who say a downturn will be avoided.

But few other economists have the official say as to whether a recession is underway. That official verdict will come from a little-known panel of academic economists, including Feldstein, making his comments particularly important. But anyone waiting for a recession verdict will likely have to wait a good long while.

The responsibility for defining U.S. recessions falls on the shoulders of seven economists who form the Business Cycle Dating Committee at the Cambridge, Mass.-based NBER. The organization has been dating business cycles since 1929 and first formed the all-volunteer committee 30 years ago.

While recessions are often described as two consecutive quarters of decline in economic output, that's not the official definition.

Instead, the panel looks at a series of economic data, including gross domestic product, income, employment, industrial production and retail sales. There is no formal model. The economists make their judgments based on subjective discussion of the data.

The committee hasn't discussed the "R word" in the current context, says Robert Hall, a Stanford University economics professor who has chaired the recession dating panel since its inception.

That's not a surprise, even if a recession is in progress. In a memo posted on its website Tuesday, the NBER said it typically declares the start of a recession six to 18 months after it happens.

It wasn't until November 2001 that the committee said the last recession had begun eight months earlier. The panel waited until July 2003 to announce that the recession had ended in November 2001.