Leading forecasters are projecting that the recession in the US could worsen this year and the US unemployment rate — now at 7.6 percent, the highest in more than 16 years — is expected to hit a peak of 9 percent this year.
That gloomy outlook came from leading forecasters in the latest survey by the National Association for Business Economics (NABE) scheduled for release yesterday. The new estimates are roughly in line with other recent projections, including those released last week by the US Federal Reserve.
“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,” said NABE president Chris Varvares, head of Macroeconomic Advisers.
NABE forecasters expect the economy to shrink by 1.9 percent this year, a much deeper contraction than the 0.2 percent dip projected in the fall.
If the new forecast is correct, it would mark the first time since 1991 the economy actually contracted over a full year and would be the worst showing since 1982, when the country had suffered through a severe recession.
Vanishing jobs, shrinking retirement savings, rising foreclosures and tanking home values have forced US consumers to cut back, which in turn has caused businesses to lay off workers and slash costs in other ways, feeding a vicious downward cycle for the economy.
In terms of lost economic activity this year, the biggest hit will come in the first six months, forecasters said.
NABE forecasters now expect the economy to slide backward at a staggering pace of 5 percent in the current quarter.
That’s a sharp downgrade from the 1.3 percent annualized drop projected in the old survey.
“Further pronounced weakness in housing and deteriorating labor markets underscore the risks for 2009,” Varvares said.
Many economists believe that the current quarter will be the worst of the recession in terms of the bite to GDP.
The second quarter of this year will also be a lot weaker, with the forecasters now calling for the economy to contract at a 1.7 percent pace, compared with the prior projection of 0.5 percent growth.
In the second half of this year, the economy should expand, but still less than what economists thought just a few months ago.
NABE forecasters predicted that when all is said and done the recession will have caused GDP to decline 2.8 percent. That would be “slightly less than the 3.1 percent during the early ’70s,” said a survey of 47 forecasters taken between Jan. 29 and Feb. 12.
Even in the best-case scenario, with the recession ending sometime in the second half of this year, employment conditions will be tough.
Some of the forecasters said the US unemployment rate could rise as high as 9 percent for all of this year and hit 10 percent next year.