Hampel on TV: Recovery will have 'saucer-like' bottom

WASHINGTON (6/2/08)--Falling home values and rising gasoline prices are buffeting consumer confidence, which will result in a slow economic recovery with a "saucer-like" bottom, Credit Union National Association (CUNA) Chief Economist Bill Hampel told Bloomberg Television Friday.

Bloomberg anchor Kathleen Hays interviewed Hampel on the topic of consumer confidence.
Real household spending on everything besides fuel is negative so far this year, said Hampel, who pointed out that fuel for transportation can account for more than 10% of a household's budget.

He said consumers' inflationary expectations are somewhat inflated due to recent spikes in gasoline and food prices, while most other prices actually are well-behaved.

"The other economists at CUNA and I actually believe inflation will be moderating for the rest of the year," Hampel said. "This eventually will get built into consumer expectations and confidence."

Hampel believes economic indicators published later this year will show the U.S. economy entered a recession in December or January. He predicts the recovery to begin in the third quarter, but that the consequent growth will fall below recent trends.

He also thinks the meager recovery will spur the Federal Reserve to cut interest rates another 25- to 50 basis points by the end of this year.

Hampel said consumer balance sheets are in "lousy condition" after many borrowed against home equity, which in many cases has evaporated. "Consumer debt ratios are really high. It will take quite a long time to rebuild their net worth," said the CUNA economist.

courtesy of cuna.org