From the Wall Street Journal:
Economists in Poll Expect
Credit Turmoil to Continue
By PHIL IZZO
November 15, 2007; Page A4
The credit crisis weighing on markets still has some time to play out and consumers may have a tough slog ahead, according to economists in the latest WSJ.com forecasting survey. But confidence in the Federal Reserve’s ability to navigate the rough economic waters remains high.
When asked about the credit crisis and related market turmoil, more than half of the economists said it was about half over, while 25% said it still is in its early stages. Just 15% said the credit troubles are over or mostly over.
“I don’t think it’s close to being over,” said David Resler of Nomura Securities. “I think we’re not halfway through the duration of the correction.”
Some 28% of the economists said the credit crunch is the biggest downside risk to their forecasts. The concern came in second only to housing, which drew 30% of the responses. Oil came in third with 16%, while the stock market and falling dollar barely registered.
Indeed, many see the credit crisis exacerbating the continuing problems in the housing market. “This is a vicious housing bust. We could be going through the bursting of an asset-price bubble,” said Allen Sinai of Decision Economics Inc., who expects a major effect on consumer spending, which remains the main driver of gross domestic product.
When asked if the problems in the housing market will spill over into consumer spending, about four out of five economists said “yes.”
“The potential declines in home prices can put a significant drag on consumer spending,” said Mr. Resler, who notes that the effects may not show up for some time. “It took a long time after the tech bubble burst for it to show up in consumer behavior.”
“Lenders have further tightened lending standards, which will constitute a major headwind for the would-be extractor of home equity to finance spending,” said Richard Berner of Morgan Stanley in a research note. “While we believe that fears of a full-scale credit crunch are overblown, mortgage credit availability is already tighter than in the 1990 credit crunch period.”