U.S. now in recession, jobs to go

By Wanfeng Zhou

NEW YORK (Reuters) - The United States is already in what could be its longest recession in decades due to the global financial crisis, and with unemployment set to soar, the Federal Reserve will cut interest rates again, a Reuters poll showed.

Economists were far more downbeat than five weeks ago, before the collapse of investment bank Lehman Brothers unleashed a month of global market turmoil, and they now say the U.S. economy contracted in the just-finished third quarter and will not grow again until the second quarter of 2009.

Should those predictions hold true, it would be the longest period of declining quarterly U.S. gross domestic product since a run of three consecutive quarters of declines in 1974-1975.

"We expect a moderate recession over the next three quarters due to scarce bank credit and wealth declines in housing and equities that will smother consumer and business spending," said Scott Anderson, chief economist at Wells Fargo & Co.

In September, the mid-range forecast put the chance of recession at 60 percent, with only 18 of 47 economists saying a recession had already begun.

The latest survey found only two of 42 economists believed the United States was not yet in recession.

The debate now is about the severity of the downturn. Of those venturing an opinion, 19 economists see it as an 'average' recession, 10 predict it will be 'deep' and six see it as 'shallow'.

What happened in the past month to so dramatically weaken the outlook? Here's a quick snapshot:

* Lehman Brothers went bankrupt;

* The U.S. government effectively nationalized insurance giant American International Group (AIG.N);

* Credit markets came to a near complete halt and stock markets crashed due to panic selling by investors worldwide;

* The U.S. Congress enacted a historic $700 billion financial rescue package;

* Governments worldwide stepped in to rescue banks from collapse.

4TH-QTR GDP SEEN DROPPING MOST SINCE 3RD QTR 2001

The survey showed economists say the economy likely shrank in the third quarter at an annualized rate of 0.4 percent, a drastic reversal from the previous median estimate of 0.8 growth produced just one month ago.