Recession likely to end in Q3 2009-Blue Chip survey

By Nancy Waitz

WASHINGTON, July 10 (Reuters) - The U.S. economy's rough ride these past 18 months may be nearing an end as private economists predict the arbiter of recessions will declare it over in the third quarter, a survey showed on Friday.

The Blue Chip Economic Indicators survey for July showed that 65.4 percent of the economists polled say the National Bureau of Economic Research will declare the deepest recession since at least World War II over in the third quarter of 2009.

In the Blue Chip poll, conducted between July 6 and 7, economists project the economy will begin turning around in the third quarter, eking out growth of 1.0 percent after a forecast last month for growth of 0.6 percent.

The Commerce Department said last month that GDP shrank 5.5 percent in the first quarter of 2009. Blue Chip looks for a 1.8 percent contraction in the second quarter.

The economists expect GDP to continue expanding with fairly robust growth of 3.0 percent kicking in by the fourth quarter of 2010, the survey showed.

During this recession, the most prolonged in decades, the economy has contracted for three straight quarters. The weakest period of that downturn occurred in the fourth quarter of 2008, when the economy sank 6.3 percent.

While the consensus says GDP is poised to begin growing again, tight credit for mortgage lending, a large glut of unsold homes and falling home prices will limit the rebound in residential investment.

SAVINGS TREND LIKELY TO CONTINUE

The projected rebound in consumer spending is expected to be capped by efforts on the part of households to rebuild savings after sharp declines in home values and equity prices over the past few years, the survey said.

And the likelihood that federal, state and local governments will raise taxes to meet budget shortfalls, could hamper consumer spending and business investment further, it said.

On a yearly basis, GDP is expected to contract 2.6 percent in 2009, a slight improvement from the 2.7 percent contraction forecast last month and a 2.8 percent contraction projected in May's survey.

For 2010, the economists expect GDP to grow 2.0 percent, unchanged from the June forecast, but up from the 1.9 percent growth forecast in the May survey.

The survey, which was taken after the Labor Department said the jobless rate in June rose to 9.5 percent, the highest in nearly 26 years, showed the jobless rate peaking at 10.3 percent in the first quarter of 2010.

In June, the 53 leading private economists predicted the rate would reach 10.1 percent in the same quarter.

The poll also showed 80 percent of the economists expect Federal Reserve Chairman Ben Bernanke to be reappointed when his term expires in January. [ID:n10383715] (Editing by Jan Paschal)