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Economists See Recession Ending in 3rd Qtr.

May 27, 2009 by · Leave a Comment 

More than 90% of economists predict the recession will end this year, although the recovery is likely to be bumpy, according to the Associated Press.

That assessment came from leading forecasters in a survey by the National Association for Business Economics (NABE) to be released today (May 27). It is generally in line with the outlook from Federal Reserve Chairman Ben Bernanke and his colleagues.

About 74% of the forecasters expect the recession — which started in December 2007 and is the longest since World War II — to end in the third quarter. Another 19% predict the turning point will come in the final three months of this year, and the remaining 7% believe the recession will end in the first quarter of 2010.

“While the overall tone remains soft, there are emerging signs that the economy is stabilizing,” said NABE President Chris Varvares, head of Macroeconomic Advisers. “The economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”

One of the major forces that plunged the economy into a recession was the financial crisis that struck with force last fall and was the worst since the 1930s. Economists say recoveries after financial crises tend to be slower.

Against that backdrop, unemployment will climb this year even if the economy is rebounding, the NABE forecasters predict. Companies won’t be in a rush to hire until they feel certain any recovery is firmly rooted.

For all of this year, the forecasters said the unemployment rate should average 9.1%, a big jump from 5.8% last year and up from its current quarter-century peak of 8.9%. If NABE forecasters are right, it would be the highest since a 9.6%t rate in 1983, when the country was struggling to recover from a severe recession.

Some forecasters thought the unemployment rate could rise as high as 10.7% in the second quarter of next year. The NABE outlook from 45 economists was conducted April 27 through May 11.

General Motors Corp., chemical company DuPont and Clear Channel Communications Inc. were among the companies announcing mass layoffs during the survey period.

With joblessness rising, consumers — major shapers of overall economic activity — likely will stay cautious, making for a tepid turnaround. And given the big bite the recession has taken out of household wealth, notably the values of homes and investment portfolios, consumers probably will stay subdued for some time.

Seventy-one percent of the forecasters believe a more-thrifty consumer will be around for at least the next five years.

Americans’ personal savings rate edged up to 4.2% in March, marking the first time in a decade that the savings rate has been above 4% for three straight months.

Even as the NABE forecasters believe the country will emerge from recession later this year, they also predict the economy’s overall performance in 2009 will be rotten.

The economy should contract by 2.8% this year, the forecasters said in updated projections. That’s worse than the 1.9% drop they forecast in late February. If they are right, it would mark the worst annual contraction since 1946, when economic activity fell by 11%.

Still, the forecasters believe the worst is already behind the country in terms of lost economic activity.

The economy shrank at a 6.1% annualized pace in the first three months of this year, on top of a 6.3% decline in the final three months of last year, the worst six-month performance in 50 years.

For the current April-June quarter, the NABE forecasters believe the economy will shrink at a pace of 1.8%. After that, the economy should start growing again — at a 0.7% pace in the third quarter and a 1.8% pace in the fourth quarter.

NABE’s growth projections for the third and fourth quarters are lower than those made in late February. The downgrade was based on the expectation that businesses, whose profits and sales were hit hard by the recession, will remain wary of ramping up investment.

President Barack Obama’s $787 billion stimulus package of increased government spending and tax cuts, near-zero interest rates ordered by the Fed and government programs to get banks to lend more freely again all factor into the expected economic revival.

Many forecasters also predict that home sales will hit bottom by the middle of this year, another stabilizing factor for the economy. A report on sales of previously owned homes will be released today, and data on new-home sales is due Thursday.

Next year, the economy should grow by 2%, the forecasters said. That was lower than the 2.4% growth projected in February.

With a lethargic recovery expected, forecasters predict the Fed won’t start boosting interest rates until the second quarter of next year.

Because Fed policymakers expect credit and financial problems to ebb slowly, “the pace of the recovery would continue to be damped in 2010,” they said last week.

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