The economy might slow, but it still has a good chance of avoiding a recession.
James Swanson, chief investment strategist at MFS, Boston, gave that assessment here during MFS’ annual investment outlook review.
Swanson listed several reasons for optimism.
The Federal Reserve Board has taken a moderate approach to easing interest rates, and big corporations have been careful about spending, Swanson noted.
The subprime mortgage market is such a small part of the U.S. economy that, even if there were a 20% drop in price and a 40% default rate, the resulting $150 billion to $200 billion in losses would have a relatively modest direct effect on the economy, Swanson said.
But one risk is the indirect effect that empty houses might have on the construction and housing sectors, Swanson said.
The growth of the housing market has created more than 1.5 million jobs in recent years and represented about 6% of gross domestic product, Swanson said.
Higher gas prices are of interest, but they should not push the United States into a recession, because the share of spending now going toward energy is much lower than it has been in the past, Swanson said.
In addition, even if companies lay off some workers, families may have more diversified sources of income than they had during past economic downturns, Swanson said.
Today, Swanson said, many families can tap rental income, bonuses, deferred compensation and transfer payments from the government.