Economists Forecast Lengthiest Downturn Since Great Depression
By Phil Izzo, WSJ | 11 December 2008
|
"For the household sector, this will be the worst event we've had in the post-World War II period," said Bruce Kasman of J.P. Morgan Chase & Co. "The downturn would be deeper still, in our view, were it not for an ultra-aggressive combination of monetary and fiscal stimulus that will soon move into high gear," Morgan Stanley economists Richard Berner and David Greenlaw said in a research note. Authorities are pulling out all the stops: Quantitative easing by the Fed and the largest-ever fiscal stimulus package likely will promote stability in the economy late in 2009 and a moderate recovery in 2010."
Many economists cited a major expected fiscal-stimulus package as the key to pulling the U.S. out of recession. Details about the government intervention remain unclear. "The precise date is likely to depend on timing of the stimulus package," said Lou Crandall of Wrightson ICAP.
Even with specifics of the stimulus uncertain, the economists expressed confidence in U.S. President-elect Barack Obama's economic team. Nearly half of respondents said the incoming policy makers are significantly better than their counterparts in the Bush administration, and a quarter said the new team is slightly better. Just 10% favored the departing officials.
The lack of confidence was clear in the economists' grades for Treasury Secretary Henry Paulson, whose marks fell to a 60, the lowest level during his tenure. More than half of respondents gave the Treasury secretary a grade equivalent to a D or F. Federal Reserve Chairman Ben Bernanke's average grade rose slightly to a 72, but 26% gave him the equivalent of a D or F. More than half of economists put his grade in the A or B range.
The length of a downturn can be measured against earlier recessions, but its intensity is harder to quantify and compare. "History never really repeats itself," said Stuart Hoffman of PNC Financial Services Group. "It's difficult to say that this is the worst recession in the postwar period."
Adding in the economists' forecasts, a tally of the change in GDP from the beginning to the end of the recession puts the decline at slightly more than 1% overall. Periods of growth in early 2008 offset some of the expected weakness this year and next. That makes the current recession deeper than those in the 1990s and in early this century, but it doesn't reach lows seen in the 1970s and 1980s.
"Recessions that tended to be the deepest were sparked by events that caught the business sector off guard," said Mr. Kasman, who notes that corporate profits aren't likely to be hit as hard as past recessions. "This event had a prelude. Therefore, the intensity of the event is being smoothed out over a longer period of time."
This recession has centered not on businesses but consumers, who are being hit by dwindling home prices and job losses. [[And maxed out credit cards.: normxxx]] The economists on average said the unemployment rate will peak at 8.4% in response to this recession. While that actual rate was surpassed in both the 1970s and 1980s, it would mark a four-percentage-point increase from the low of 4.4% in March 2007. Only the 1973-75 recession, with a 4.1-percentage-point increase, had a larger jump in the postwar period.
About The Survey
The Wall Street Journal surveys a group of 55 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economist.
Adding to consumers' pain is that the end of the recession isn't likely to mark the end of job losses. In past recessions, labor-market contraction continued for months after a downturn's official end. So, while economists, on average, expect the unemployment rate to top out at 8.4%, they forecast an 8.1% rate for December 2009 as job cuts continue into 2010.
"The job market is ugly and is going to stay that way," said Allen Sinai at Decision Economics. "The economy is going through the heart of reductions in the work force now." This scenario creates problems for the Fed, as it seeks to fulfill part of its dual mandate to control inflation and support growth.
The challenge is compounded by an effective federal-funds rate that is already close to 0%, offering the central bank little room to use its most powerful policy tool. The nominal rate now stands at 1%, and economists expect a half-percentage-point cut to 0.5% at next week's rate-setting meeting. On average, they expect the rate to stay at 0.5% through June 2009.
That doesn't mean the Fed is out of options. When asked what the Fed's most useful remaining tool is, more than one in four economists said the central bank should target long-term interest rates, by actions such as buying Treasurys. Among the economists, 23% said the Fed should backstop specific markets, similar to its moves in commercial paper. Thirteen percent said the Fed should expand lending facilities further, and 8% said the central bank should commit to keeping rates low for an extended period. However, the plurality of the economists chose "other"— with most saying the Fed needs to use a combination of the options.
One concern that has moved to the wayside is inflation— the other part of the central bank's mandate. The economists expect consumer prices to be flat on a year-over-year basis in June 2009, before rising slightly to a 1.2% annual gain by next December. "Unless the Fed turns the tide fast, inflation is not a concern," Mr. Kasman said.
|
ߧ
Normxxx
______________
The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.
No comments:
Post a Comment