U.S. ECONOMIC OUTLOOK

The critical question to be addressed in coming months is whether or not the U.S. economy will dip into recession. We suggest about a 30% chance of recession over the next year, with a stronger expectation that a “growth recession” or sluggish growth is more likely.
The nation’s unemployment rate averaged 4.6% over the past 20 months, below the averages of the ‘70s, the ‘80s, and the ‘90s. Economic weakness could see the rate approach 5.0% in coming months. The longer-term issue of tighter labor availability – especially for skilled workers – will challenge businesses of all shapes and sizes.
Most forecasts still see consumer inflation this year near 2.5%-2.8%, with slightly lower inflation pressures in 2008. The Consumer Price Index rose 2.5% last year, 3.4% in 2005, and 3.3% in 2004. Powerful competition in nearly all industries helps keep inflation low.
Surging home prices on both coasts and in the Southwest during 2002 to 2006 gave way to a buyers’ market during the past year. The simple reason? The average U.S. home value rose 50.76% between June 30, 2002 and June 30, 2007. Florida?...up 95.3%. Arizona?...up 90.78%. California?...up 90.15%/ Nevada?...up 89.47% (source:OFHEO). Homeowners and “investors” simply become too greedy, requiring the current painful downward adjustment in many markets. We expect greater home price strength in the nation’s interior as relative values (compared to the coasts) are attractive.

The thoughts above were gleaned from "U.S. Economic Outlook" of Liberty Views