February 24, 2009 It's going to get worse Experts see jobless rate rising amid retrenchment by recession-battered consumers
By JEANNINE AVERSA, Associated Press
First published in print: Tuesday, February 24, 2009
WASHINGTON Brace yourself: The recession is projected to worsen this year.
The country stands to lose a sizable chunk of economic activity in 2009 as consumers at home and abroad retrench in the face of persistent economic troubles.
And the U.S. unemployment rate now at 7.6 percent, the highest in more than 16 years is expected hit a peak of 9 percent this year.
That gloomy outlook came from leading forecasters in the latest survey by the National Association for Business Economics released Monday. The new estimates are roughly in line with other recent projections, including those released last week by the Federal Reserve.
"The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters," said NABE president Chris Varvares, head of Macroeconomic Advisers.
All told, Varvares and his fellow forecasters now expect the economy to shrink by 1.9 percent this year, a much deeper contraction than the 0.2 percent dip projected in the fall.
If the new forecast is correct, it would mark the first time since 1991 the economy actually contracted over a full year and would be the worst showing since 1982, when the country suffered through a severe recession.
Vanishing jobs, shrinking nest eggs, rising foreclosures and tanking home values have forced American consumers to cut back, which in turn has caused businesses to lay off workers and slash costs in other ways, feeding a vicious downward cycle for the economy.
The current recession, which started in December 2007, is posing a major challenge to Washington policymakers, including President Barack Obama and Fed Chairman Ben Bernanke. That's because its root causes a housing collapse, credit crunch and financial turmoil are the worst since the 1930s and don't lend themselves to easy or quick fixes.
Just over the past few weeks, a $787 billion recovery package of increased government spending and tax cuts was signed into law, the President unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.
In terms of lost economic activity in 2009, the biggest hit will come in the first six months, forecasters said. NABE forecasters now expect the economy to slide backward at a staggering pace of 5 percent in the current January-March quarter. That's a sharp downgrade from the 1.3 percent annualized drop projected in the old survey.
Many economists believe that the current quarter will be the worst of the recession in terms of the bite to gross domestic product, which is the value of all goods and services produced within the U.S. and is the broadest barometer of the country's economic health.
The second quarter of this year also will be a lot weaker, with the forecasters now calling for the economy to contract at a 1.7 percent pace, compared with the prior projection of 0.5 percent growth.
In the second half of this year, the economy should expand, but still less than what economists thought just a few months ago. NABE forecasters believe home sales and housing construction should hit bottom by the middle of the year, which would help stabilize the economy. Home prices, however, are expected to keep falling, according to other experts.
NABE forecasters predicted that when all is said and done, the recession will have caused GDP to decline 2.8 percent. That would be "slightly less than the 3.1 percent during the early '70s," according to the survey of 47 forecasters taken between Jan. 29 and Feb. 12.
Even in the best-case scenario, with the recession ending sometime in the second half of this year, employment conditions will be tough.
Some forecasters said the unemployment rate could hit 9 percent for all of 2009 and hit 10 percent next year. In 2008, the jobless rate averaged 5.8 percent, the highest since 2003. The survey's median forecast, or middle point, called for the rate to rise to 8.4 percent this year and 8.8 percent next year.
