U.S. Faces `Stagnant' Growth, Conference Board Says

By Shamim Adam

Sept. 5 (Bloomberg) -- The U.S. economy is ``stagnant,'' Europe is falling into a recession, and central banks won't have much room to cut borrowing costs amid elevated prices, the Conference Board said today.

``This is a period of rolling adjustments, that goes from sector to sector, that will keep the U.S. growth rate low in the 1 percent-to-2 percent range for the foreseeable future,'' said Gail Fosler, president of the group known for its consumer- confidence survey. ``Europe is in somewhat more peril.''

The euro slumped to an 11-month low against the dollar today after European Central Bank President Jean-Claude Trichet said yesterday the economy is ``weak.'' The U.S. government needs to start using more of its money to support markets and stem a burgeoning ``financial tsunami,'' said Bill Gross, manager of the world's biggest bond fund.

``We are looking for the U.S. economy to slow significantly in the coming quarters,'' said Michael Buchanan, Hong Kong-based chief economist for Asia excluding Japan at Goldman Sachs Group Inc. ``U.S. consumption growth is turning down very sharply. The U.S. consumer is finally going to roll over.''

Risks to economic growth are intensifying globally, Fosler told a conference in Singapore today. Australia's economy is slowing and China is seeing the most pronounced signs of a slowdown since the Asian financial crisis a decade ago, she said.

China's slowdown is evident in ``the willingness of officials to reverse a lot of the policies that they put in place to restrain the economy and move back to a pro-export economy to try and stabilize this,'' Fosler said.

Recession-Like

The U.S. faces a period of ``diminished expectations'' that may last as long as five years, Fosler said. Growth of 2 percent or less in the world's largest economy would feel like a recession, the head of the New York-based research group said.

``The tech sector is beginning to weaken and the manufacturing sector, which has really held up, is likely to begin to weaken,'' she said. ``The U.S. is going to be in a relatively stagnant, relatively slow growth mode for the foreseeable future.''

About 463,000 Americans have lost jobs since January as the worst housing recession in a quarter century curtailed spending and bank lending. Economists expect annualized rates of growth of 1 percent in the third quarter and 0.4 percent in the fourth quarter, according to the median estimate in a Bloomberg News survey in early August.

Federal Reserve Bank of San Francisco President Janet Yellen said yesterday there are ``substantial'' risks of slower U.S. economic growth, and inflation is likely to slow, declining to rule out the chance of an interest-rate cut.

`Ephemeral'

Tight credit conditions and ongoing declines in residential construction will weigh on economic growth in coming months, Fed policy makers said at their Aug. 5 meeting. The U.S. economy's acceleration to a 3.3 percent growth rate in the second quarter ``is likely to prove ephemeral,'' Yellen said.

Europe is moving in a ``more dramatic way'' toward a recession than the U.S., because the region doesn't have the underlying structural productivity that the U.S. has, Fosler said, citing Conference Board indicators.

Global inflation pressures will persist even as commodity prices ease, Fosler said.

``Even if commodity prices come down, we will still be left with a new environment with more pronounced inflation risks and central banks simply do not the latitude to lower interest rates as they did'' in the past, she said.

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net