Many economists aren’t predicting a recession

updated 6:44 p.m. ET Feb. 27, 2007

WASHINGTON - Alan Greenspan and the Wall Street nosedive aside, economists think the probability of a U.S. recession this year is fairly low and the likelihood of one in China is even slimmer.

Greenspan, the former chairman of the Federal Reserve, warned this week that the world's largest economy — the United States — could slip into recession this year. That would be bad news for the global economy, too.

However, many economists put the probability of a recession at about one in five.

The biggest risk to the five-year-old U.S. economic expansion is that the housing slump might take an unexpected turn for the worse, analysts say. In one dire scenario, not only would consumers and businesses clamp down on spending and investing, but troubles could spread to lenders dealing in risky mortgages, triggering a financial crisis.

The latest U.S. economic barometers released Tuesday were mostly good, but they failed to ease investors' anxiety. The Dow Jones Industrials tumbled 416.02 points to close at 12,216.24. At one point during the day, the Dow slid as much as 546 points, its worst decline in more than five years.

The National Association of Realtors reported that sales of previously owned homes — the biggest chunk of the housing market — rose by 3 percent in January from the previous month. That was the largest gain in two years. While the sales boost was helped out by last month's unusually warm weather, it still raised hopes that the worst of the residential real-estate bust may be over.

Even if that turns out to be the case, the pain of the housing slump will continue to be felt this year because the inventory of unsold homes is still bloated. That will take time to fix and may drag down home prices even more.

The nationwide median price of an existing home sold in January sank to $210,600, a drop of 3.1 percent from last year and the third-largest annual decline on record. The median price is where half sell for more and half for less.

So far, consumers — the lifeblood of the economy — have been spending sufficiently to keep the economy moving ahead. The worry, though, is that people who had treated their homes like ATMs — when values were soaring through the five-year housing boom that ended in 2005 — will cut back on their spending as home prices in some markets drop or go up only a little.

Before Tuesday's huge stock market drop, consumers seemed in buoyant spirits.

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks end day higher as dollar continues slide NYT: Under attack, Bernanke studies politics   Dollar stumbles to 15-month low Of bats and billions: Following stimulus funds As stimulus funds trickle down, debate heats up Geithner encouraged by policies in Asia World Bank: Job losses threaten U.S. economy Oil rises as China's economy rebounds FDIC: Big banks still aren't lending enough Job openings near record lows, and may linger Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: