Survey: Economists see recession ending in ’09-WEB ONLY

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

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

About 74 percent 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 percent predict the turning
point will come in the final three months of this year, and the remaining 7
percent 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 percent, a big jump from 5.8 percent
last year and up from its current quarter-century peak of 8.9 percent. If NABE
forecasters are right, it would be the highest since a 9.6-percent 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 percent 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 percent in March,
marking the first time in a decade that the savings rate has been above 4
percent 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 percent
this year, the forecasters said in updated projections. That’s worse than the
1.9-percent 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-percent
annualized pace in the first three months of this year, on top of a 6.3-percent
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 percent. After
that, the economy should start growing again – at a 0.7-percent pace in the
third quarter and a 1.8-percent 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.

Next year, the economy should grow by 2 percent, the forecasters said. That was
lower than the 2.4-percent 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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