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Analysts See Moderate Growth Despite Housing Fallout

Tuesday, 5 Jun 2007 | 12:22 PM ET

Richard DeKaser, chief economist at National City Corporation, told CNBC’s “Morning Call” that the worst of the housing slump is over.

He looks for 3.2% growth in the second quarter and 2.5% to 3% growth in the second half of this year. He acknowledged that such a forecast may not “feel pleasant,” but it’s “consistent” with the “soft landing” the Federal Reserve has been trying to engineer.

“Even if the housing market continues to be in decline -- and it is and will likely remain so -- but if that decline is at a slower pace, its overall drag on the rest of the economy is diminishing,” DeKaser said. “In that sense, I think it can be fairly asserted that the worst is behind us, but that doesn’t mean it’s over.”

Housing & the Fed
Debating whether the Fed is underestimating the housing slowdown's impact on the economy, with Thomas Higgins, Payden & Rygel chief economist; Richard DeKaser, National City Corporation chief economist and CNBC's Becky Quick

Thomas Higgins, chief economist at Payden & Rygel, said housing will be a drag on the economy longer than expected, but strong employment and consumer spending will provide support.

“Discretionary spending generally may see a drag over the coming months, particularly due to the downturn in house prices,” Higgins said. “New home prices plummeted at their most rapid rate in nearly 40 years, and existing home prices are kind of flat right now. We expect that will be a drag on consumer spending as consumers feel a little less wealthy in the coming months. In general, the national labor market, which remains relatively tight, should support income gains and support the consumer going forward.”

Earlier Tuesday, Federal Reserve Chairman Ben Bernanke said the economy will rebound even if the housing slump continues.