A ROOMFUL OF ECONOMISTS |
The latest survey of 47 national economists (including yours truly) by the National Association for Business Economics was conducted in recent weeks and formally released on Monday, February 23. As one might expect, it was not pretty.
The consensus view has deteriorated sharply when compared to prior forecasts, which are conducted three times annually. “The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters,” noted Chris Varvares, the current president of the group. “While a few reports offer some glimmer of hope, a meaningful recovery is not expected to take hold until next year.”
But Getting Better
As the chart notes, a sharp contraction in the U.S. economy is likely during the current quarter, with lesser pain during the spring. The consensus also sees soft, but at least positive growth (hurray!) returning during 2009’s second half. (Note: I still think it may be 2009’s fourth quarter before growth returns, but what do I know…hey!…no rude comments!)
The forecast for calendar year 2009 is for a 0.9% real (after inflation) rate of contraction, when comparing this year’s fourth quarter to last year’s fourth quarter. This would be the most painful decline since 1982, and worse than the 0.2% decline by this measurement during 2008.
To show just how bad seasoned economists have been, last November’s forecast consensus was for a 0.7% growth rate during 2009. Last May’s forecast? A 2.7% growth pace during 2009…(nobody said forecasting the future is easy!)
These “crystal ball gazers” collectively now see the unemployment rate reaching 9.0% sometime in the fourth quarter, with the loss of another three million jobs in 2009, matching job losses during 2008. Overall corporate profits are expected to fall 9% this year, with housing starts and auto sales the weakest in decades.
Stock Market Optimism
The outlook for the stock market is very optimistic, with the consensus seeing the Standard & Poor’s 500 at 975 by the end of the year, up 30% from the current level near 750. Note, however, that the consensus last November saw the S&P at 1200 at year end 2009…ouch!
A Solid 2010
Better news involves the forecast for 2010. Prior optimism last November has been pushed back, not abandoned. The consensus sees 3.1% real growth in 2010. They see the unemployment rate beginning to fall, with the addition of 1.3 million jobs during the year. The consensus also expects housing starts and auto sales to at least reach the subdued levels seen during 2008.
Leading the Way
The United States is seen as the most likely major nation to emerge from recession first. Roughly one-third of the forecasters see the U.S. back on its feet first, followed by 28% who believe China will recover first. Another 13% see Canada first out of the recession litter box. Less than 4% expect Europe to lead the global recovery.
Jeff Thredgold is an economic consultant to Zions Bank
Featured in the 25 February 2009 issue of Jeff Thredgold’s Tea Leaf newsletter.
*Artwork from franckie under Creative Commons license at Flickr.com.
I wonder if Zions corp can t do more for their business custmers to provide funds for capital projects that will stimulate the economy faster and help slow the rapid deterioration. In your last mass email there was a statement that Zions is aggresively lending money to its business clients. I just recvd a $40k loan from Zions for some equipment that I purchased that allowed me to hire two new employees. YEAH!
Not really
I had to put up $3,000,000 to get this loan….Thats three million dollars(One million dollars or equipment(true market value with no leins against any of it) and 2 million dollar personal guarantee)
….This is pure nonsense after you have rcvd tons of cash due to your poor lending practices…..
Historical studies have shown that the Keynesian multiplier from government stimulus spending is about 0.8. If you don’t believe the economic historians, use logic; any multiplier above 1.0 implies that politically directed spending can produce net wealth – unlimited wealth. We all know what happened in the USSR. Government spending destroys capital; it is malinvestment.
When the Fed creates too much money, it creates a malinvestment bubble – tech stocks in the 90s (NASDAQ 7000), then housing (Case-Shiller 200), then commodities ($147 oil), and now Treasury bonds. The current price of the 30 year bond implies about 1.5% annual inflation over the next 30 years. Fat chance! Much of the trillions that the Federalies are borrowing is short term, and soon foreigners who see the handwriting on the wall won’t supply enough unless interest rates rise dramatically. Then the Feds printing presses will roll and savers and investors will be cheated by inflation and by a tax system that taxes inflation as if it were real income.
A decade from now, 2009 will be the good old days – remember that the Social Security Trust Fund goes cash flow negative in 7 years and that Congress has already spent every cent in both the SS and Medicare Trust funds.