ABC News: IHS Global insight interview “bad news” for US economy

TONY EASTLEY: In the United States the grim outlook for the economy has been heightened by yet more bleak news about the employment picture. The number of Americans applying for unemployment benefits has risen to its highest level in six months.

Adding to the gloomy picture is the news that banks are taking over foreclosed homes at a near record pace.

Washington correspondent Kim Landers reports.

KIM LANDERS: In the United States pessimism about the economy is rising. A Wall Street Journal poll shows almost two-thirds of Americans believe the economy will worsen before it gets better.

New claims for unemployment benefits have jumped to the highest level in six months with 484,000 Americans applying for help last week alone.

Nariman Behravesh is the chief economist at IHS Global Insight.

NARIMAN BEHRAVESH: These numbers just seem to confirm that the US economy is slowing down quite significantly. I don’t think we’re back in recession territory but on the other hand we are looking at very sluggish growth.

KIM LANDERS: How far off is the United States from a second recession?

NARIMAN BEHRAVESH: I would assess the risks of a double dip in the United States as only about 25 per cent right now. On the other hand I think the likelihood of a period of sub-par growth if you can call it that which is to say growth of no better than about 2 per cent – that risk is quite high for the US.

KIM LANDERS: Michael Feroli is the chief US economist for JP Morgan.

MICHAEL FEROLI: The news we got this morning on the economy certainly was not a very comforting one. Seeing jobless claims above 480,000 for two weeks in a row is not something that makes one really bullish on the economy.

KIM LANDERS: More Americans are also falling into foreclosure. Banks took over almost 93,000 properties last month – the second highest monthly total.

Real estate data company RealtyTrac says unemployment is driving most of the foreclosure activity.

Meanwhile Nariman Behravesh from IHS Global Insight says the US is in what he calls an epidemic of thrift. That is consumers and businesses are saving a lot because they’re worried about the strength of the economic recovery.

NARIMAN BEHRAVESH: But there’s a countervailing force if you will here and that is there’s a lot of pent up demand. Businesses and households are putting off spending on big ticket items, on big projects and so forth.

And there’s a limit to both the thrift if you will, the parsimony and how long they can put off some of these expenditures. Sooner or later we’ll start to see some of that pent up demand begin to release.

We can debate about when that happens. Our best guess is that it’ll probably happen at the beginning of next year.

KIM LANDERS: The bleak economic data comes just days after the Federal Reserve downgraded its assessment of the economy’s health.

This is Kim Landers in Washington for AM.