Forecasters share predictions for economy's outlook in 2009

It may come as a surprise, given all the bad news of late, but the U.S. economy is expected to emerge from the recession sometime around mid-2009.

Until that happens, the economy will remain mired in one of the deepest and longest downturns the nation has seen in decades.

If the recession continues past the spring, as many economists predict, it will be the most prolonged one since the Great Depression. Employers are expected to continue to shed jobs at a rapid pace. Consumers will pull back spending. Businesses will cancel equipment purchases. Unsold, empty homes will dot city blocks.

However, once the massive amount of fiscal stimulus currently being crafted by lawmakers and aggressive action by the Federal Reserve kicks in, the economy is expected to improve, according to several economists and business owners.

"We all just need to hang on," says Allen Sinai, president of Decision Economics, an economic consulting firm. "By late in the year, the economy will be moving up, and 2010 should be a recovery year."

OLE managing partner Javier Escobedo is counting on that.

Business at his New York-based advertising company with a focus on the Hispanic retail market has dropped significantly since Thanksgiving. In the past few months Escobedo has not renewed contracts for about 20 people he employed on a project basis.

He's looking for things to pick up in the third quarter. But "the highflying numbers in terms of revenues in my business" won't likely come for two to three years, he says.

Unknown is how rapidly the economy will rebound once the turnaround takes hold. Some say it could come roaring back.

"We're going to throw so much at it in terms of fiscal and monetary stimulus that we will turn it around, and it will have legs," Comerica Bank chief economist Dana Johnson says.

Others are gloomier. They expect continued job losses and depressed consumer and business spending throughout the year because of tight credit conditions. The resulting damage to the consumer and business psyche will change the very nature of the economy for years to come.

"The first six months of '09 will be very painful, the second six months will just be painful, and 2010 will be uncomfortable," Moody's chief economist Mark Zandi says.

Predicting the economy's future is particularly tough this year, given rapid changes in the economy and financial markets, and uncertainty about what course of action Congress and President-elect Barack Obama's administration will take to boost the economy in the new year, says Conrad DeQuadros, senior economist at consulting firm RDQ Economics.

"When it comes to all of these forecasts, there is a lot less clarity than usual," he says.

A look at five key areas of the economy to watch in 2009

1. Jobs

The outlook for jobs is probably the worst aspect of the economy in 2009. Employers are expected to trim payrolls until the end of the year, shoving the jobless rate above 8%, according to forecasts from Barclays Capital, John Hancock Financial Services, Citigroup, Mission Residential, Wachovia and National City.

That excludes those who have given up on finding jobs or who work part time because they can't get full-time work. The jobless rate was 6.7% in November, the highest in 15 years.

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