U.S. Recession Worst in Three Decades, Business Economists Say
By Shobhana Chandra
Feb. 23 (Bloomberg) — The U.S. recession will be the worst in more than three decades as job losses ount and consumers and companies retrench, a survey of business economists showed.
The world’s largest economy will shrink by 1.9 percent this year and a total of 2.8 percent in the current downturn, the most since the 1973-75 slump, according to the median estimate in a poll taken by the National Association for Business Economics. Another 3.2 million Americans will be cut from payrolls in 2009, pushing unemployment to 9 percent by year-end, NABE said.
The prospects for spending and output grew darker compared with the group’s November survey, today’s report showed. Eight out of 10 economists projected the stimulus plan signed into law last week by President Barack Obama would contribute at most a 1 percentage-point boost to gross domestic product this year.
“The steady drumbeat of weak economic and financial-market data have made business economists decidedly more pessimistic,” Chris Varvares, president of both the group and of Macroeconomic Advisers LLC in St. Louis, said in a statement. “A meaningful recovery is not expected to take hold until next year.”
The federal budget deficit will swell to a record $1.5 trillion in the fiscal year ending in September, from $455 billion in the previous 12 months, the survey showed. The gap will probably be $1.1 trillion next year, NABE economists said.
Spending to Fall
Consumer spending, which accounts for more than 70 percent of the economy, is projected to decline 1.3 percent this year, compared with a 0.2 percent drop forecast in the November survey.
Economists cut 2009 projections for auto sales to 10.9 million from the 12.5 million projected in November.
Builders will break ground on 630,000 homes this year, the fewest in 50 years of record-keeping and less than the 870,000 starts projected in the November poll. Still, participants predicted home sales would reach a trough by the middle of the year.
The cost of living will decline 0.8 percent in 2009 as the benefit of lower raw-material expenses is passed through to consumers, the NABE report indicated. With inflation evaporating and the economy in recession, Federal Reserve policy makers will keep the benchmark interest rate close to zero all year, the NABE economists said.
On a quarterly basis, the economy will shrink 5 percent in the first three months of 2009 and contract 1.7 percent from April to June, before turning to growth of 1.6 percent in the second half of the year, NABE predicted.
Even as the outlook worsened for 2009, economists in the poll projected the U.S. would be the first to emerge from the global recession, followed by China and Canada. The NABE survey was conducted from Jan. 29 to Feb. 12.
Paul Volcker, the former Federal Reserve chairman who heads Obama’s Economic Recovery Advisory Board, said last week he was “shocked” by the international reach of the slowdown. “We’re in the middle of a kind of massive economic crisis,” he said in remarks at Columbia University in New York.
Stocks slid this month in anticipation of a deeper recession and renewed turmoil among banks. The Standard & Poor’s 500 Stock Index lost 11 percent in the past two weeks, the worst fortnight since November. Bank of America Corp. and Citigroup Inc. slid Feb. 20 on concern they could be nationalized, before Bank of America Chief Executive Officer Kenneth Lewis said in a memo his bank didn’t need more aid.
The estimates for 2009 were in line with economists surveyed by Bloomberg News from Feb. 2 to Feb. 10. The Bloomberg poll showed the economy will shrink 2 percent this year, the most since 1946.