Economists: Recession to end in 2009

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A recent survey by the National Association of Business Economists (NABE) has predicted that the recession will end in the third quarter of 2009. An organization dedicated to analyzing economic trends, NABE's forecasts have gotten increasingly optimistic over the past few months, suggesting that many consumers are growing less apprehensive about the future.

Admittedly, NABE's rosy prediction should be taken advisedly. After all, it's only been four months since the organization was predicting a full year of rising unemployment, falling spending and shrinking GDP. For that matter, even though 74 percent of NABE economists think that the recession will turn around in the third quarter, the rest are hedging their bets. Nineteen percent are anticipating that it will continue to the end of the year and seven percent are anticipating that it will last until the first quarter of 2010.

Furthermore, NABE has not backed off its February prediction that unemployment will hit nine percent this year, and some economists are anticipating that it could rise as high as 10.7 percent in 2010. Many analysts are predicting that unemployment will remain elevated into 2011 and won't return to normal until 2013. This largely reflects a conservative approach by businesses, which will be skittish about bringing on new workers until it's clear that a recovery is really taking place.

With unemployment high, the next stubborn indicator is reduced consumer spending. The personal savings rate reached 4.2 percent in March, marking the first time in ten years that it has been over four percent for three months. Many economists are anticipating that consumers will remain thrifty for the next five years. However, for those of us who grew up surrounded by survivors of the Great Depression, five years seems like a blindingly optimistic prediction. It seems more likely that the habits currently being inculcated in consumers will last a lot longer.

While NABE's economists predicted a brutal 2.8 percent economic contraction, 0.9 percent above their February prediction, they also noted that the worst of the contraction is behind us. The economy shrank at a pace of 6.1 percent in the first three months of 2009, following a 6.3 percent drop in the last three months of 2008. This is the worst six-month performance in over fifty years. By comparison, in the current quarter, the economy is on track to shrink by 1.8 percent.

While NABE is anticipating a two percent rebound in 2010, it's worth noting that this is significantly less than their February prediction of 2.4 percent. They also added some sobering commentary, cautioning that the economic recovery will be "unusually gradual and prolonged." This is due in large part to the fact that the underlying causes of the recession, including a credit crisis and a housing bubble, will be difficult to resolve.

Ultimately, the message is that, while there is certainly a light at the end of the tunnel, it's probably a little early to start pricing McMansions.

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