Forecast: Assessing Recession

You don't need economists to tell you the economy stinks, not with layoffs increasing, energy prices climbing and unsold cars, computers and communications gear piling up. But you do need them to tell you when things are going to get better. When? That's what we asked TIME's Board of Economists. Their unanimous answer: Not right away. Even if the U.S. can steer clear of a recession--and one panelist says we may be in one already--the economy will remain so weak for the next 12 months that to millions of Americans, conditions will still feel like a slump, particularly as unemployment rises. And it will rise.

Any outright recession should be short-lived, thanks to recent Federal Reserve rate cuts and rebate checks of up to $600 a household that families can expect by September, compliments of last month's $1.35 trillion, 10-year tax cut. (Singles without kids will receive about $300.) Richard Berner, chief U.S. economist for Morgan Stanley, says that while a recession may have got under way in the spring, the rebates should underwrite modest growth by this fall. (A recession is commonly viewed as two consecutive quarters of shrinking GDP.) Says Berner: "It's likely to be the shortest and mildest [contraction] on record."

What ails the economy, TIME's panelists agree, is the hangover from the irrationally exuberant investment binge that saw companies throwing money at all things high tech. That rocketed the rate of economic growth a year ago to a broiling annual pace of 5.6%. But when the overheated spending failed to produce juicy profits, corporate America suddenly cut back, bringing capital investment to a halt and lowering gdp growth to just 1.3% in the first quarter of this year. Today's high-tech investment numbers still look "monumentally awful," says Ian Shepherdson, chief U.S. economist for the consulting firm High Frequency Economics.

The cutbacks have already reversed some of the gains in productivity that had been touted as major achievements of the New Economy. Such gains stemmed from spending for technology that allowed a growing number of employees to work faster and smarter--a process that economists call capital deepening. But "as the investment boom goes bust," says William Dudley, chief U.S. economist for Goldman Sachs, "there is going to be less capital per worker, and you will lose that increment in productivity."

All that fancy new gear failed to warn of the present slowdown or keep companies from stockpiling unsold goods. (We have no "visibility," corporate chieftains declaim.) "If the decline in sales is dramatic," says Shepherdson, "all the technology isn't going to tell you it's coming."