Economists cut 2008 U.S. GDP growth forecast to 2.4%

The Blue Chip Economic Indicators newsletter, (subscription required), a survey of economists, has lowered its 2008 U.S. GDP growth forecast to 2.4% from 2.6% last month.

The monthly newsletter said the effects from the subprime mortgage and related asset defaults are likely to carry over well into 2008, crimping consumer spending and business investment.

Further, the newsletter expects housing starts to fall to their lowest level since 1993 amid a high inventory of unsold homes, tighter lending standard and falling prices. Many economists expect home prices to record their first year-to-year decline in 2007 since the 1930s.

Economist Steve Affinito, who was not a member of the newsletter survey, told Bloggingstocks Tuesday that investors should pay careful attention to the downward revision trend regarding 2008 U.S. GDP growth.

"First, the Blue Chip Economic Indicators newsletter is a respected source, and when you combine their downward revision with those from other research organizations, it doesn't paint the best picture for the U.S. economy in 2008," Affinito said. "Growth could always accelerate beyond expectations in the second half of 2008, but right now it's looking more and more like 2008 will be a year of sluggish, slow growth, at best."

On the positive side, economists surveyed by the newsletter say the U.S. Federal Reserve is at the ready: the economists said sluggish economic growth is likely to convince the Fed to lower key, short-term interest rats one or two more times.

Economic Analysis: With the respect the BCEI newsletter has, market bulls will be relieved that the downward U.S. GDP revision wasn't larger. Further, from a monetary policy standpoint, the U.S. Federal Reserve is in-tune to the slowdown, and will provide additional economic stimulus. However, if growth slows substantially in Q4 2007 and Q1 2008, some fiscal policy stimulus also may be needed, but that won't be easy given the divided U.S. government - - a Democratic Party-led U.S. Congress and an Executive Branch led by President Bush, a Republican.