Economists rate chance of recession as a 'coin flip'

— -- There is a 50-50 chance that the U.S. economy will sink into recession this year, but any downturn will likely be short and shallow, according to a survey of economists out Tuesday.

Economists in the USA TODAY survey anticipate that after a marked slowdown in the first half of the year, consumer spending and business investment will pick up later in 2008, and unemployment will rise only slightly from current levels.

But the economy is by no means expected to be strong, and economists are divided about when the sharp drop in sales of previously owned homes will hit bottom.

And the mood has gotten gloomier in just the last few months, according to the survey of 51 economists taken Jan. 23-25.

In October, the economists said there was a 30% chance of recession, according to the median answer, with only 6% of those surveyed saying the odds of a recession were greater than 50%. This month, nearly 1-in-3 put the odds at greater than 50%.

"While it's definitely the case that at the minimum we are in a patch of disappointing and weak growth, it's not clear that we are in store for a classic recessionary environment," says Comerica Bank chief economist Dana Johnson, who is in the 50-50 camp. "To me it doesn't look like we've had that rupture in the labor market that is characteristic of a recession, and I'm not sure we will."

While there are a lot of things to be pessimistic about, including an increase in the unemployment rate, a continued housing slump and decreased lending, Anderson says there are also some things to be positive about, including a fiscal stimulus package moving through Congress and aggressive action from the Federal Reserve. While such action may not avert a recession entirely, it could help the economy pull out of one faster than it otherwise would, he says.

The economists expect the Fed to continue to cut interest rates through the first half of 2008 to the lowest in three years. Slightly more than half expect the Fed to cut its target for short-term interest rates by a half-percentage point at the conclusion of the two-day meeting Wednesday.