Economists see U.S. headed for prolonged recession

WASHINGTON (Reuters) - The U.S. economy is headed for a recession that will be deeper and last longer than the those of the previous two, according to the closely watched Blue Chip survey of economists released on Monday.

"The consensus strong suggests the current recession will be deeper and last longer than those of 2001 and 1990-1991," the monthly Blue Chip Economic Indicators newsletter said. "Some of our panelists believe it may (rival) the 1981-1982 downturn, but that is not yet the consensus view."

The newsletter, which conducted its latest poll on November 5-6, said economists now expect the economy to shrink at a 2.8 percent annual rate in the fourth quarter. A month ago, the consensus view was for a 1.1 percent contraction.

Economist predict U.S. gross domestic product will contract at a 1.5 percent pace in the first quarter of 2009, much sharper than the 0.1 percent drop forecast in October.

For 2009 as a whole, economists expect GDP to shrink 0.4 percent.

A spate of weak reports confirming that the flagging economy took a turn for the worse in September, coupled with a steep downturn in the U.S. stock market, led economists to sharply cut their forecasts.

The newsletter noted its survey was concluded the day before the government said the economy had shed 240,000 jobs in October and that the drop in employment in the prior two months was deeper than had been thought.

So far this year, the economy has shed 1.2 million jobs and the Blue Chip panel of nearly 50 economists do not expect a quick turnaround.

"Job losses seem destined to remain sizable over coming months as the recession continues to take its toll," the newsletter said. "Service sector and state and local government employment, a source of relative strength earlier this year, has now begun to roll over."

The deteriorating labor market is expected to weigh heavily on U.S. households. Disposable personal income is forecast to grow only 0.8 percent next year compared with an expected gain of 1.2 percent this year, Blue Chip said.

"However, the 2009 consensus estimate could rise if, as expected, new fiscal stimulus is enacted over coming months," the newsletter said.

All the panelists surveyed said Congress will pass and the president will approve a new package of measures to give a lift to the economy within the next six months.

While trade has acted as a source of strength for the past few quarters, the economists expect that contribution to turn negative next year in response to weak global growth and a firmer U.S. dollar.

(Reporting by Nancy Waitz; Editing by Neil Stempleman)