Most economists see recession end in '09

By
Real Estate Agent with RE/MAX Professionals, CT 203-206-0754 REB.0759001

From a news article that was hard to overlook this morning.

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 to be released Wednesday. 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.

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.

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 percent. 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. 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.

From my read, they are visualizing the activity that we seem to be experiencing. First time buyers are stimulating the market drawn by the lowwer interest rates, the supply of affordable housing, even though almost 40% of them are foreclosures, and the incentive of the $8,000 tax rebate. On the surface, it would appear that the economists using all of their knowledge and supply of data are taking a cautious approach to the obvious. Then again these are the economists that were slow to see the decline in market activity and the problems of the sub-prime lending fiasco that we experienced far sooner than late 2007.

Who would have thought that we Realtors would be the bloodhounds scaring up the economic birds for the rest of the experts to shoot at?

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Ed Silva  RE/MAX Professionals,  www.edwardsilva.com  203-206-0754

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Rainmaker
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William James Walton Sr.
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WEICHERT, REALTORS® - Briotti Group

Ed, it's been circulating for some time now that in order for the economy to rebound, that the first industry to be hit with the recession would also have to be the first to lead us out of it - and that industry is the one that you and I both work in - housing.

May 29, 2009 11:17 AM
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