Economists: No End Soon

From Kelly Evans and Phil Izzo in the Wall Street Journal:
Economists in the latest Wall Street Journal forecasting survey still mostly project growth in U.S. gross domestic product by the third quarter, but they largely agree that a 2009 "second-half recovery" -- a widely shared scenario until now -- is looking much less likely.
Recent data showing just how sharply growth in the U.S. and elsewhere has declined in the final months of 2008 have cast a deepening shadow over 2009.
As recently as September, economists on average thought the U.S. would see annualized GDP growth of 1.2% in the first three months of this year; now, they see a 4.6% decline. Forecasts for the April-through-June period have seen a similar shift, from a 1.9% growth forecast to now a 1.5% decline, based on the 52 economists who participated in the Journal's February survey.
The average forecast is for growth in the third quarter at 0.7%, less than half the rate expected last fall. The fourth-quarter picture has also darkened, but just slightly, to growth of 1.9% from 2.1% seen in November. Only five economists see growth declining through the fourth quarter of 2009; but they insist the consensus outlook right now, which says the recession will end in August as GDP returns to growth, is far too optimistic.
"The consensus is usually late to the party," said Brian Fabbri, chief economist at BNP Paribas, noting he was one of the few who forecast the current recession two years ago. Now, he is one of the five who sees GDP declining through the end of 2009, along with Joseph Shapiro, chief U.S. economist at forecasting firm MFR Inc.; Paul Ashworth of Capital Economics; Swiss Re chief economist Kurt Karl; and retired Vanderbilt University professor J. Dewey Daane.
"We're in trouble," Mr. Fabbri said. "We don't have sufficient economic plans at present to resolve the banking system or the financial crisis, and the stimulus package seems loaded for 2010." He added that the global nature of the downturn along with U.S. consumers' increased saving and lenders' tightened standards all stand in the way of a quick recovery.
A boost to the economy from the government stimulus package has been a key feature of most forecasts for a rosy finish to 2009, but economists in the February survey largely expressed disappointment with how the package is shaping up. Comments on the package's influence this year say it is "too late," "provides little boost," is "trivial," "too big," "too small" and a "colossal waste of money." Nicholas Perna of Perna Associates cautioned, "We're in danger of repeating Japan's mistakes," referring to that nation's policy errors during its "lost decade" of the 1990s.
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.
Forecasters also were asked how many jobs they expect the U.S. to lose in 2009, and the average response called for a loss of nearly 183,000 a month. But when asked how that would look absent the stimulus package, they saw a loss on average of about 271,000 a month. Employment often lags behind changes in economic growth, and if the labor market behaves as it has during the past two recessions, job losses and unemployment will likely rise for many months after GDP returns to growth. On average, economists see unemployment hitting 8.8% by December, from its current 7.6%.
Mr. Shapiro, who has been bearish on 2009 for months, sees unemployment hitting nearly 10% by year end and says he expects the economy to shrink through 2010. "We just think the enormity of the problem is not recognized by most people," he said. "If you look at the magnitude of this problem, the amount of debt relative to income, the credit and asset bubbles that have now reversed and it's only just started, why is it going to end two quarters from now?"
"To say 'off we go' in the second half of the year, I think that begs incredulity, I just don't buy it," he said. "It's a global thing, too; trade volumes are just cratering and our exports are getting pounded. There's nowhere to hide."