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Economists See Recession Through 2009

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November 03, 2008 – Comments (1)

Survey finds that falling consumer demand, rising unemployment and ongoing credit crunch will fuel downturn through end of next year.

NEW YORK (CNNMoney.com) -- A survey of top economists released Monday shows that the vast majority of them believe the economy has fallen into a recession that will continue throughout all of 2009.

According to the National Association of Business Economists, 90% of the 102 members responding were more pessimistic about the economy than they had been in July.

The economists indicated that a recession is likely to continue at least through the end of next year, with 79% saying the economy will grow less than 1% and 38% saying the economy will shrink next year.

"There has been a sharp decline in current and near-term expectations among economists," said Ken Simonson, a member of the NABE committee that conducted the survey. "This represents a big turnabout in attitude about the economy."

With the economy mired in a prolonged credit crisis, the Federal Reserve has slashed interest rates several times, most recently cutting them by a half-percentage point, to 1%, on October 29.

But just 36% of respondents said the rate cuts and other initiatives by the Fed to unfreeze the credit markets were having a positive impact and 58% said the programs were having little impact. The survey was completed on Oct. 23, before the Fed's last rate cut.

"Economists have a very pessimistic view of the Fed's programs," said Simonson. "The inability to get funding has lowered their near-term expectations for the economy."

Low consumer sentiment and poor economic conditions have sharply reduced demand for goods and services. According to the survey, 35% reported falling demand while just 30% said demand was rising. It was the first time since 2001 in which more respondents reported declining demand than rising demand.

By way of comparison, 44% of respondents reported rising demand in July and only 19% reported falling demand. The NABE said every time since 1982 when economists reported more declines than increases in demand, the economy has later proven to be in a recession.

As demand slumped, respondents said their firms' profit margins sagged as well. Just 15% of economists surveyed said their companies' profit margins were rising, compared to 44% who said margins were falling.

Continued job cuts are also likely, as 23% of respondents said their firms or industries were cutting jobs, compared to 16% who reported that they were hiring.

"Over the next six months, far more firms expect to cut back on employment, which will likely make the recession deeper," Simonson said.

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1 Comments – Post Your Own

#1) On November 03, 2008 at 7:27 PM, oldfashionedway (35.32) wrote:

".. economists...believe the econony has fallen into a recession..."  OH, REALLY???  

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