Odds of a 'new' recession? 50-50 chance, says Harvard economist

Harvard University economics professor Martin Feldstein said the U.S. recovery that began two years ago has been losing steam and there are even odds the economy will slip into recession. “This economy is really balanced on the edge,” Feldstein said in an interview on Bloomberg Television “Surveillance Midday” with Tom Keene. “I think there's now a 50 percent chance that we could slide into a new recession.” Feldstein cited continued weakness in housing and employment. U.S. consumer spending unexpectedly dropped in June for the first time in almost two years, Commerce Department figures showed today in Washington. “Nothing has given us much growth,” Feldstein said. “The economy has been flat to down since the beginning of the year.” Gross domestic product climbed at a 1.3 percent annual rate from April through June after a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed July 29. Household spending grew 0.1 percent, the weakest performance since the second quarter of 2009, at the end of the last recession. Unemployment likely stayed at 9.2 percent as payrolls climbed by 85,000 workers in July, according to a Bloomberg News survey ahead of the Labor Department report Aug. 5. Through June, the economy had recovered about 1.77 million of the 8.75 million jobs lost as a result of the 18-month recession that began in December 2007. Bernanke's Comments The Federal Reserve “has done everything it can,” Feldstein said, though Congress and the administration have failed to address the central problem of weak housing. “Housing is a major drag on the economy,” he said. “The plan to deal with it has been a failure” and house prices have continued to fall. Feldstein's comments echoed Fed Chairman Ben S. Bernanke, who in testimony to Congress in July said the “economy still needs a good deal of support.” “The most recent data attest to the continuing weakness of the labor market,” Bernanke said July 13. Feldstein, 71, is a former president of the National Bureau of Economic Research and a member of the NBER committee that declared the recession ended in June 2009. He formerly served as chief economic adviser to President Ronald Reagan.