US Recession Could End In Next Quarter

Source : The Straits Times, May 28, 2009

Govt stimulus spending and Fed efforts paying off, key survey shows

WASHINGTON: - The US recession will probably end in the third quarter of this year, a key survey of business economists showed, even as rising joblessness indicates the recovery will be weaker than previously estimated.

The world's largest economy will begin to expand next quarter, according to 74 per cent of leading forecasters in a National Association for Business Economics (Nabe) survey. Compared with Nabe's February poll, growth will be slower and unemployment will be higher in the second half of this year and through 2010.

Government stimulus spending and Federal Reserve attempts to thaw credit markets are helping to pull the economy out of the worst slump in half a century, the survey said. While housing is stabilising, the economists predicted that consumer spending will be restrained by a deteriorating labour market as job losses continue for the rest of the year.

'There are emerging signs that the economy is stabilising,' Mr Chris Varvares, president of the group and of Macroeconomic Advisers, said in a statement. Still, the recovery may be 'considerably more moderate than those typically experienced following steep declines', he said.

The economy will shrink at a 1.8 per cent annual rate from April to June, and then grow at a 0.7 per cent pace in the next three months, the survey showed. Growth will accelerate to a 1.8 per cent rate by the final quarter.

Consumer spending, which accounts for about 70 per cent of the economy, may fall 0.4 per cent this year, compared with a 1.3 per cent drop forecast in the prior poll. Purchases will increase 2.1 per cent next year, less than estimated in February. The Nabe survey, based on the median forecast of a panel of 45 economists, was conducted from April 27 to May 11.

Nine of every 10 participants said the Fed's new credit facilities improved borrowing conditions, and 55 per cent said the programmes also benefited markets that were not directly targeted. At the same time, nearly half the economists said credit was still hard to get.

Home sales may reach a bottom by mid-year, according to 72 per cent of the panellists, and more than six in 10 predicted that housing starts will hit a trough by that time. The survey showed home prices have further to fall, with 40 per cent of the respondents forecasting the declines will continue into next year or later.

Payrolls will decrease by an estimated 4.5 million this year, pushing the unemployment rate to 9.8 per cent by year-end, almost a percentage point higher than the previous estimate of 9 per cent, the survey showed. Job gains next year will help reduce the jobless rate to 9.3 per cent by the end of 2010.

The outlook for business investment this year also soured compared with the February survey, reflecting sharper pullbacks in spending on equipment, software and facilities, and a bigger reduction in inventories. Economists in the survey also predicted corporate profits will decline 16 per cent this year.

The cost of living will fall and worker productivity will improve this year, the Nabe report showed. With inflation in check and unemployment rising, Fed policy makers will keep the benchmark interest rate close to zero until the second quarter of next year, at which time a series of increases may push the rate to 1.25 per cent by year-end. -BLOOMBERG NEWS