Speaking on CNBC television, Buffett said the economy is heading south even though gross domestic product has not yet fallen for two straight quarters, a definition many economists use to identify a recession.Buffett also said the slowing economy and the housing slump are hurting his Berkshire Hathaway Inc insurance and investment company, whose 76 operating units sell such things as bricks, carpeting, ice cream, paint, real estate brokerage services and underwear.
"By any common sense definition, we are in a recession," Buffett said. "Business is slowing down. We have retail stores in candy, home furnishings and jewelry; across the board, I'm seeing a significant slowdown."
Last week the Commerce Department said U.S. GDP rose at an annual rate of just 0.6 percent in the fourth quarter.
Known as the Oracle of Omaha, the 77-year-old Buffett is one of the world's richest people, regarded by many as America's greatest investor. Forbes magazine last September estimated his net worth at $52 billion.
Buffett said economic conditions have not deteriorated to levels in 1973 and 1974, a deep recession also marked by rising oil prices and falling stocks.
He said Federal Reserve Chairman Ben Bernanke faces a "very tough balancing act" in trying to boost economic growth without rekindling inflation. Some economists worry the U.S. economy could enter a period of "stagflation," combining recession with rising inflation and unemployment.
"In '73 and '74, we had this stagflation situation, and we really had a meltdown in equity prices," Buffett said. "We are seeing more fixed-income type forced liquidations. We are seeing more indigestion at banks with a lot of loans they don't want to have. So you're seeing a time of easy money in terms of price, but not so easy money in terms of availability."
While Buffett said he might buy more downtrodden stocks, he's also looking at bond investments that could rise. Omaha, Nebraska-based Berkshire last year spent $19.11 billion on stocks and $13.39 billion on bonds.
"At 1,300-plus on the S&P, stocks are not cheap," Buffett said, referring to the Standard & Poor's 500 index .SPX, which has fallen about 16 percent since mid-October.
"I find more things to look at now than I did six months or a year ago, but I would say it's changed more dramatically in the fixed-income market than it has in the equity market," he added. "That may be where I find the opportunities."
Falling security values and liquidity have pummeled bond insurers. On February 12, Buffett offered to reinsure $800 billion of relatively safe municipal bonds, which are typically used to finance such things as hospitals, roads and schools.
But he offered to back the bonds only at a steep premium. His offer also excluded risky debt, including securities tied to subprime mortgages, that bond insurers had agreed to guarantee in recent years to bolster profit.
Bond insurers rejected the offer and have been seeking new sources of capital. Some have also been considering separating their municipal bond business from riskier businesses.
Buffett on Monday said his earlier offer is now "not on the table," saying, "We tossed our hat in the ring and they tossed the hat back."
In December, Buffett started his own bond insurer, Berkshire Hathaway Assurance Corp. He said that unit has insured about 206 municipal bonds in the last three weeks.
On Friday, Berkshire said fourth-quarter profit fell 18 percent to $2.95 billion, or $1,904 per Class A share.
The decline stemmed in part from lower insurance premiums, a trend Buffett expects to continue in 2008, and weakness in businesses tied to housing.
Since 1965, Buffett has transformed Berkshire into a $216 billion conglomerate by acquiring out-of-favor companies with strong earnings and management, and investing in stocks.
In midday trading Berkshire Class A shares were down $4,000, or 2.9 percent, to $136,000, while its Class B shares fell $145.50, or 3.1 percent, to $4,529.00.