WASHINGTON (Reuters) - The U.S. economy is set to contract sharply in the first quarter, with the current cyclical downturn on track to rival the 1973-75 slump as soaring unemployment depresses demand, a survey showed.
However, a survey of 47 professional forecasters released by the National Association of Business Economists on Monday predicted the recession-hit economy would begin to recover in the second half of this year, returning to a potential growth trend in 2010.
The recovery was seen driven by the Obama administration’s $787 billion economic stimulus plan, the group said.
“The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters,” said NABE President Chris Varvares.
“The good news is that economic activity is expected to turn up in the second half of the year and 2010 is expected to see modestly above-trend growth of 3.1 percent,” Varvares said.
The survey, conducted between January 29 and February 12, forecast real gross domestic product would shrink by an annualized rate of 5.0 percent in the first quarter, moderating to a 1.7 percent contraction in the second quarter.
The economy was expected to expand by 1.0 percent in the third quarter, with growth quickening to 2.1 percent in the final three months of the year, the poll respondents said.
Advance government estimates showed GDP shrank at a 3.8 percent annual rate in the fourth quarter, but this figure is likely to be revised to show a bigger contraction when preliminary figures are released on Friday.
In November, the NABE survey had forecast first-quarter GDP sliding at an annual rate of 1.3 percent, before rising by an anemic 0.5 percent in the second quarter.
The U.S. economy tipped into recession in December 2007, triggered by the collapse of the domestic housing market and the accompanying global credit crisis.
With real estate and stock market prices crumbling, household wealth is declining and their spending capacity has been severely eroded. The resulting slump in demand is forcing companies to lay off workers in huge numbers, exacerbating the severity of the 13-month-old downturn.
“Cumulatively, the cyclical downturn will rival that of 1973-75. In the current downturn, real GDP is predicted to decline 2.8 percent — slightly less than the 3.1 percent during the early ‘70s,” the NABE said.
The survey forecast the unemployment rate peaking at 9.0 percent in the fourth quarter, before edging lower from the second quarter of 2010.
The U.S. jobless rate is currently at 7.6 percent, a 16-year high.
“Job losses are expected to persist through 2009, though steadily diminishing over the course of the year. Average monthly payroll losses of 421,000 through the first half of the year will taper to 114,000 during the second half,” the NABE said.
House prices, as measured by the Federal Housing Finance Agency, were predicted to fall 5.3 percent this year, while declining home sales were seen reaching a bottom by mid-2009. Restoring stability to the housing market is widely seen as crucial to reviving the economy.
The slump in consumer demand was expected to suppress inflation pressures, with the consumer price index forecast to fall 0.8 percent in 2009, before rebounding to 1.9 percent in 2010.
Despite the pessimistic near-term outlook, the survey forecast the economy expanding at a rate of 3.1 percent in 2010, largely driven by the government’s massive stimulus plan.
“NABE panelists foresee the United States as the leader in shaking off the recession shroud,” the group said.