Credit crisis sends economic forecasters' views downhill fast

ByABC News
November 16, 2008, 11:48 PM

WASHINGTON -- Forecasters' views of the economy are deteriorating rapidly, with economists now expecting job losses to be deeper and last longer and consumers to cut back spending at a far more rapid pace than earlier thought.

The U.S. economy is contracting at a 2.6% annual rate in the last three months of the year and will fall at a 1.3% pace in the January-March quarter, according to a survey of 50 members of the National Association for Business Economics taken Oct. 28-Nov. 7 and released Monday.

That is a big change from the survey conducted in mid-September, when the economists said the economy would grow, albeit at a slow pace, during the end of 2008 and the beginning of 2009. The economy contracted at a 0.3% pace in the July-September period.

In the short period of time between the two surveys, the credit crisis intensified and evidence grew that problems in the financial sector were spilling over and hitting particularly hard for consumers, the main drivers of the U.S. economy. The NABE economists now expect the economy in 2008 and 2009 to grow at the slowest pace for a two-year period since the early 1980s, when the economy was hit by one of the longest recessions in the postwar period.

"There has been this perfect storm that has slammed the consumer sector," says Chris Varvares, NABE president and head of economic consulting firm Macroeconomic Advisers. Consumers are grappling with continued declines in home prices, elevated energy costs, plummeting stock prices and credit constrictions.

The biggest hit to consumers is job security. The economists said they expected employers to cut at least 100,000 jobs each month through the first half of the year. They also expect the unemployment rate to reach a high of 7.5% in the second half of 2009, up from the 6.5% rate measured in October and more than a full percentage point higher than that expected in the September survey.

Other details from the survey:

Nearly all of the economists say the USA is in a recession. Half say the downturn began at the end of 2007 or the beginning of 2008.