The United States is at an "elevated" risk of economic recession because of housing woes, faltering confidence within financial markets and high oil prices, the nonpartisan Congressional Budget Office said Wednesday.
"The economic outlook right now is particularly uncertain," said CBO Director Peter Orszag in testimony presented to the House Budget Committee. "Economic activity has probably already slowed significantly and the risk of a recession is now elevated," he said.
Orszag, who noted that his agency will issue a more detailed forecast in January, said that "most analysts" believe the U.S. will avoid a recession but that the economy "will grow relatively weakly for several quarters."
In August, the CBO projected 2.9 percent growth in real gross domestic product in 2008. Last week, the White House said it expected real GDP to grow 2.7 percent in 2008, down from a June forecast for 3.1 percent growth.
House Budget Committee Chairman John Spratt, a South Carolina Democrat who will be writing a fiscal 2009 budget blueprint in coming months, opened the hearing asking, "Are we at the tipping point, headed into a recession or just leaning into a slump or a slowdown?"
Orszag warned that an extended period of slow economic growth or recession could make Spratt's task more difficult because it would lead to a "noticeable deterioration" in budget deficits that President Bush and Democrats in Congress want to eliminate by 2012.
The CBO's assessment comes as Democrats in Congress are beginning to highlight economic concerns in the run-up to next year's congressional and presidential elections.
Orszag warned that as house prices continue to decline, it could "affect consumer spending." On the positive side, Orszag noted improvement in the U.S. current-account balance and inflation that is still contained, despite higher oil prices and the weakness of the dollar. "Such news gives the Federal Reserve room to adjust interest rates," Orszag testified.