Greenspan: Economic Data Look Good Through Third Quarter

While U.S. economic data look good in the third quarter, the growth rate will continue to slow and the housing market will weaken further, former U.S. Federal Reserve chairman Alan Greenspan said Wednesday.

Greenspan said that the economic growth rate should continue to slow through the rest of the year and into the first quarter of 2008. The "critical issue" now for the U.S., as well as globally, he said, is where home prices are headed, and he expects a "significant decline." Greenspan was speaking before attendees at the World Business Forum, held Wednesday and Thursday at Radio City Music Hall in New York. "The critical question is the price level of homes in the U.S., which are almost certainly going to fall," Greenspan said, as the hefty inventory of unsold homes continues to drive down prices. "What we don't know at this stage is whether in fact the decline in home prices will be a large one or a modest one," he said. Greenspan said that given the current climate, the odds that the U.S. will skirt a recession now look to be better than 50/50. In March he put the odds of a recession over the next six to nine months - at one-third. That could be offset though by stock market prices, he said, if they continue to rise. In his remarks, Greenspan also addressed the credit crisis that roiled markets this summer, noting that credit changes were "an accident waiting to happen" given the low level of credit spreads for such a long period of time. "History always suggests that that does not last," Greenspan said. "If it wasn't subprime, it would have been something else." Greenspan though noted that the U.S. came into the credit crisis amid a "fairly strong" global upside move," adding that talking about the U.S. economy without the global context is "no longer relevant." Turning to China, Greenspan said that growth there has been "quite remarkable," adding that "nobody is fully cognizant or understands why they have done so well for so long. China has moved "very dramatically toward capitalism," he said, and even though it appears to be "overheating," the country continues to progress. Greenspan also said that rising Chinese inflation was "not all that significant" noting that much of that increase was due to rising food prices. But, he added, "at some point, they've got to slow down" and it's conceivable that other areas of eastern Asia could begin to be successful in competing with the country. But as yet, "they're still the dominant force and at least through the Olympics, China "should do very well."