Economy faces recession, probably in Q1

By Burton Frierson

NEW YORK (Reuters) - The U.S. economy has ground to a halt and probably already is in recession but faces higher inflation this year than thought just a month ago, a Reuters poll showed on Wednesday.

A dismal run of economic data including two months of job market contraction, a declining factory sector and shrinkage in the dominant service sector, has led analysts to downgrade the already grim economic assessment they gave a month ago.

Economists made their forecasts before the Federal Reserve and other central banks teamed up on Tuesday to get hundreds of billions of dollars in fresh funds to cash-starved credit markets, allowing financial firms to use securities backed by home mortgages as collateral for central bank loans.

The latest poll, taken March 7-12, also reaffirmed the disturbing trend set in motion last year of higher median inflation expectations for 2008 even as growth forecasts take another hit.

Economists dropped growth expectations to none at all for the first three months of this year from the anemic 0.2 percent they forecast last month.

The poll also showed a median 60 percent chance of an outright recession, which likely started in the current quarter if not late last year. That was up sharply from 45 percent last month and in January.

"The evidence has built to the point that it is now beyond a reasonable doubt that the U.S. economy has entered recession," said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis.

A report on Friday that showed the U.S. economy shed 63,000 jobs in February, the biggest drop in non-farm payrolls since July 2003 was a key bit of evidence to back that conviction. It was the second consecutive month that payrolls fell, which also hasn't happened since mid-2003.