US contraction may continue next year

US contraction may continue next year

Bloomberg
After growing 1.4 percent this year, the U.S. will contract 0.2 percent in 2009, according to the median estimate in a poll taken by the National Association for Business Economics. A majority of respondents said the U.K., euro area, Japan, Canada and Mexico are either now, or will soon be, in a recession.

"Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit-market stresses," Chris Varvares, president of Macroeconomic Advisers in St. Louis and of NABE, said in a statement.

Pessimism about the outlook for stocks, construction, home prices and employment means household wealth and spending will keep weakening, the report said. Of all the measures undertaken so far to stem the slump, the U.S. Treasury's bank-capital injections and Federal Reserve support for the commercial paper market will prove the most effective, the economists said.

Joblessness climbs
The jobless rate, now at a 14-year high of 6.5 percent, will climb to 7.5 percent by the end of 2009, according to the median forecast. Last month, the group anticipated it would peak at 6.4 percent by the middle of next year.

Auto sales, which the group last month projected would stabilize in 2009, are now forecast to keep sliding. Purchases will decline 6.7 percent in 2009 after dropping 17 percent this year, according to the survey.

Similarly, the economists said housing starts won't bottom until next year. Builders will break ground on 870,000 homes in 2009, the fewest in 50 years of record-keeping. Property values are likely to fall another 3.5 percent in 2009 after dropping 6 percent this year, the group said.

The outlook for home sales was less dire, with almost all respondents projecting purchases would reach a low by next June.

On a quarterly basis, the business economists projected the U.S. would shrink at a 2.6 percent annual pace from October to December and at a 1.3 percent rate in the first three months of next year. The world's largest economy would resume growing in the second quarter of 2009, expanding at a 0.5 percent pace.

Fed policy makers are likely to hold the benchmark interest rate at 1 percent through the third quarter of next year, even as the outlook for growth dims and inflation is projected to cool, the survey showed.