Economists see a low-growth, U-shaped recovery

Before you go, we thought you'd like these...
Before you go close icon

The U.S. recession is expected to end this quarter, Q3, but what form will the recovery take? If one private survey of economists is accurate, it will be a low-growth recovery.

About two-thirds of the Blue Chip Economic Indicators (BCEI) survey of private economists see a U-shaped recovery -- one where below-trend GDP growth occurs for several quarters, Reuters reported. Specifically, the economists surveyed see 2.3 percent U.S. GDP growth in 2010, after a 2.6 percent contraction in 2009.

Recovery likely to be mild

About one-sixth of the group believes the recovery will be V-shaped, or with robust GDP growth following a pronounced recession; another one-sixth sees a W-shaped recovery, or one with another period of economic weakness after some economic strength in the second half of 2009, Reuters reported.

The U.S. economy contracted just 1.0 percent in Q2 after a 6.4 percent swoon in Q1. That lessening of the decline, combined with signs of stabilization in the manufacturing and housing sector, and lower job lay-offs, suggests the U.S. recession is bottoming. Moreover, the approaching bottom -- and the project turnaround in corporate revenue it implies -- is one reason forward-looking institutional investors have bid-up the Dow and S&P 500 during the past four to five months.

Still, a U-shaped recovery will most likely not be strong enough to substantially lower U.S. unemployment, and BCEI respondents indicated as much: they expect the nation's unemployment rate to average 9.9 percent in 2010 -- half a percentage point above the current 9.4 percent rate.

Could a double-dip recession occur?


Even so, as tepid as a U-shaped recovery is, if it occurs, it would still be preferable to selected other scenarios.

For example, MarketWatch Chief Economist Irwin Kellner, no economic alarmist, is nevertheless in the camp that argues the United States is headed for a W-shaped recovery, also known as a double-dip recession. Kellner says a lack of job growth, lost wealth, high debts, low savings, too little lending, excess capacity in real estate and production, and premature efforts to remove liquidity and decrease the budget deficit will cause the young U.S. recovery to stall.

Economic Analysis:
The latest BCEI forecast is consistent with U.S. economic fundamentals that show inadequate demand domestically (high unemployment, "frugal consumer" belt-tightening, stagnant wages in many job classifications). Second, it underscores the need for the United States to find new sectors -- new engines of growth - to make up for the industrial output and jobs lost to globalization: it's hard to see U.S. GDP increasing at an adequate without those new engines of growth. Third, it also highlights the importance of increased consumption and demand in the world's other, major economic regions: Asia, Europe, Latin America. Unlike past expansions, U.S. consumption will not be nearly high enough to drive global GDP growth, and only after the world has established multiple engines of growth will the global economy return to a sustainable growth track.
Read Full Story

Markets

S&P 500 2,204.71 12.76 0.58%
DJIA 19,216.24 45.82 0.24%
NASDAQ 5,308.89 53.24 1.01%
DAX 10,684.83 171.48 1.63%
HANG SENG 22,676.69 171.14 0.76%
NIKKEI 225 18,370.83 95.84 0.52%
USD (per EUR) 1.08 0.00 0.02%
USD (per CHF) 1.01 0.00 0.00%
JPY (per USD) 113.71 -0.15 -0.13%
GBP (per USD) 1.27 0.00 0.15%

From Our Partners