US recession to end by September, but unemployment to rise: Economists

The US recession will be over in September, but not the unemployment, which may continue to rise until the second half of 2010, says a survey released on Friday.

The Blue Chip Economic Indicators survey of private economists predicts a 5 per cent and 1.8 per cent contraction in US gross domestic product (GDP) for the first two quarters of the year, respectively. The third quarter of 2009 brings a more hopeful prediction of 0.4 per cent growth.

On average, the 53 economists surveyed expect the recession to end in September, compared with the October forecast last month. It marks the first time since the recession began that the economists didn't push the date of recovery further into the future.

"Real GDP contracted very sharply during the first quarter of this year and will continue to shrink, albeit more slowly in the second quarter before turning very modestly higher in the third and fourth quarters," the survey said.

The survey, conducted between April 3 and April 6, revealed a ''long road ahead'' attitude from the economists.

Several factors are offering hope, chief among them businesses' sharp cuts in production and inventory late last year. The economy may be reaching a point where even meeting subsistence demand requires an increase in output. Empty shelves need to be restocked, even if at lower levels than before.

The economy also is set to get the benefits of monetary and fiscal policy, as the stimulus begins to hit and Treasury and Federal Reserve programs to prop up the financial sector ramp up.

Nine out of 10 economists surveyed expect help from the Term Asset-Backed Securities Loan Facility, which is aimed at boosting consumer and small-business loans. Meanwhile, 72 per cent of respondents say the Treasury's plan to purchase toxic assets will help the economy.

It showed much of the anticipated turnaround in the economy would be driven by some improvement in consumer spending, housing, business inventories and exports. Yet, above-trend growth was not expected until the second half of 2010.

The recession, which began in December 2007, is now in its 16th month. If the recession continues into next month, it will be the longest since the Great Depression.

The GDP plunged at a 6.3 per cent in the fourth quarter of 2008, the most recent period for which data is available; the steepest quarterly decline since 1982.

However, recent economic data have suggested that the pace of deterioration might be slowing.

According to the survey, consumer spending which accounts for over two-thirds of US economy activity, will be supported tax cuts from the government's $787 billion stimulus package, the extension of unemployment benefits and lower inflation.

Joblosses to continue
But even with the anticipated improvement in the economy's fortunes, companies were expected to continue laying off workers well into 2010, the survey showed.

"The huge output gap created by the recession implies that unemployment will continue to rise well into 2010," it said.

Indeed, economists' prospects for the labour market remain bleak and just 12 per cent expect the unemployment rate to fall some time this year.

By December of this year, the economists on average expect the unemployment rate to reach 9.5 per cent, up from the 8.5 per cent reported for March.

They see the rate of decline slowing, forecasting 2.6 million job losses in the next 12 months compared with the 4.8 million jobs shed in the previous period.

The jobless rate surged to 8.5 per cent in March, a fresh 25-year high. Since the start of the recession in December 2007, about 5.1 million US jobs have been lost.

The economists predicted unemployment will peak next year at 9.8 per cent.

Interestigly, US Federal Reserve chairman Ben Bernanke continued to fare best, with an average grade of 76 out of 100, while president Barack Obama and treasury secretary Timothy Geithner are less popular.