Scott Anderson, vice president and senior economist with Wells Fargo Bank, who addressed service center executives at MSCI’s Economic Summit Sept. 11 in Chicago, called himself “an optimist at heart.” He described a slow-growth rather than a no-growth scenario: “We’re in the hangover period after a great party. We’re going to have a headache, but I think we can get through it without a recession.” Much depends on the evolution of inflation over the next six months or so, he said, and how the Fed reacts.

Home prices will decline a further 5 to 10 percent in the next year, with a similar dip in new-home permits. Though the housing decline will most likely make consumers more conservative, real income will continue to grow, leading to a 2.4 percent increase in consumer spending in 2008, he predicted.

U.S. capacity utilization will return to around 82 percent, near the historical average, which is a sign of health for manufacturing. Exports of U.S. manufactured goods get a boost from the weak dollar. Fed rate cuts will weaken the dollar further, improving exports and the balance of trade. Lessening the trade imbalance will help offset weakness in the housing market, he explained.

Sharing the dais with Anderson was Paul Kasriel, senior vice president and chief economist with The Northern Trust Bank, whose remarks had a more pessimistic tone. Asked Kasriel rhetorically: Will the tentacles of the housing recession strangle the rest of the economy? Yes, he asserted, answering his own question.

The housing market is in “a deep recession,” he explained. Exotic mortgages enticed buyers to over borrow, driving home prices up to 387 percent of the median family income. Today, prices are on the way down and lending standards have tightened, forcing many to default on mortgages they can no longer afford or refinance. “The housing mania is over,” Kasriel said.

The boom in new-home construction the past few years gave a disproportionate boost to the economy, accounting for 35 percent of all new jobs. Likewise, the housing bust will be disproportionately painful as it worsens unemployment.

Fortunately, housing represents only about 5 percent of GDP, so that alone won’t lead to recession. Unfortunately, because it’s no longer easy for homeowners to tap into their equity, the housing slump is bound to dampen consumer spending, which represents 70 percent of GDP. “Thus 75 percent of the economy is in peril,” Kasriel said.

Which outlook is one to believe? Anderson and Kasriel did a nice job of presenting best-case and worst-case scenarios. Prospects for the economy in 2008 are likely to fall somewhere in between.

Kasriel’s final observation is one everyone should embrace, though: “I think the risks are pretty high for recession. Will there be one? I don’t know. But you need to be conservative and plan your business around a very fragile economy.”