Tighter credit, broad deterioration in the housing market and skittish consumer spending will lead to a slower U.S. economy than earlier estimated, according to the most closely watched forecast by U.S. economists.

The consensus forecast of 50 top economists surveyed between August 1-2 in the Blue Chip Economic Indicators report called for anemic growth in gross domestic product, or GDP, of 2.0 percent this year and 2.8 percent in 2008.

That was down from their forecast a month earlier of 2.1 percent in 2007 and 2.9 percent in 2008.

Rising concern about contagion from the meltdown in the subprime mortgage market has now produced a more generalized repricing of risk, the Blue Chip Economic Indicators newsletter said.

There was some division among the economists polled but the bulk of them agreed that if the financial markets fail to stabilize soon, the economy would slow even further.

Distress among home loan originators has grown acute and many non-depository lenders have sharply curtailed their lending or gone out of business, the newsletter said.

Pessimists in the poll contend that economic activity, already slow, will grow even softer as the downturn in residential investment re-intensifies and the pace of consumer spending continues to retreat amid slowing employment growth and declining home values.

As consumer demand wanes, firms will again begin to curtail inventory building and shelve capital spending plans, leading to a renewed downturn in manufacturing output, the newsletter said.

And while export demand may hold up in the short run due to an expansive overseas growth and a weak dollar, this, too, will subside as overseas producers cut back in the face of weaker demand from U.S. consumers.

However, some panelists maintain that the current market turmoil will soon subside because interest rates on corporate debt, while higher now, remain relatively low by historical standards. In addition, profits continue to grow at a fairly solid pace.

For example, default rates on corporate bonds reside at 25-year lows and balance sheets at major banks are in good shape.

Nonetheless, there will be fewer leveraged buyouts and private-equity deals.

But those worthy of getting done will get done, the newsletter wrote.

The inflation picture looked a bit worse than a month ago. The Consumer Price Index for 2007 is expected to increase 2.8 percent from 2006, on a year-on-year basis. That was up slightly from the 2.7 percent forecast a month ago.

But the core CPI, which excludes volatile food and energy prices and is considered a better gauge of inflation, is expected to rise 2.2 percent, the same as in the forecast a month ago.

About 63 percent of the panelists said that over the past month, they cut their estimates for growth in inflation-adjusted personal consumption expenditures, or real PCE, during the second half of this year, and 60 percent reported reductions in their forecasts for residential investment.

Real PCE is expected to grow 2.9 percent this year, down from 3.2 percent in the previous month's forecast. That would mark the smallest annual increase since 2003.

The consensus looks even weaker in 2008, with PCE growth of 2.5 percent.