Unemployment in the U.S. will exceed 10 percent through the first half of 2010, limiting a recovery in consumer spending and economic growth, a survey of economists showed.
The world’s largest economy will expand 2.6 percent in 2010 after contracting 2.5 percent this year, according to the median forecast of 58 economists surveyed by Bloomberg News. The jobless rate will average 10 percent next year.
The rebound will pale in comparison to the expansion following the 1981-82 recession, the last time joblessness was this high, as households mend tattered finances. President Barack Obama this week offered new measures to spur hiring, and Federal Reserve Chairman Ben S. Bernanke said the job market was one of the “formidable headwinds” facing the economy.
“This is a recovery almost in name only,” said David Resler, chief economist at Nomura Securities International Inc. in New York, whose 2010 growth forecast matched the survey median. “The legacy of the financial crisis and the housing bubble is going to be ongoing restraint.”
After growing at a 3 percent pace this quarter, the world’s largest economy will expand 2.75 percent on average over the first six months of 2010, according to the survey median. Gross domestic product climbed at a 2.8 percent pace in this year’s third quarter.
In contrast, growth surged 7.2 percent in the first six months of 1983, two years after then Fed Chairman Paul Volcker started lowering the central bank’s target rate from 20 percent as inflation eased. The acceleration in growth brought the jobless rate from 10.8 percent in December 1982 to 8.3 percent 12 months later.
‘Very Different’
The current situation “is very different,” said Richard Berner, co-head of global economics at Morgan Stanley in New York. Financial markets weren’t as impaired as they were during this recession, he said. “The decline in the unemployment rate is going to be, unfortunately, a slow process,” he said.
Berner and Morgan Stanley’s chief U.S. fixed-income economist David Greenlaw, who were Bloomberg Markets magazine’s most accurate forecasters of the unemployment rate for the second half of 2008 and the first half of 2009, estimated joblessness will average 10 percent next year.
Concern that the economy will take a turn for the worse is one of the things keeping Ellen Kullman, chief executive officer of Dupont Co., up at night. Kullman, who cut 4,500 jobs and 10,000 contractors during the recession, said she will keep her workforce lean and stockpiles low in case the recovery falters.
‘Another Step Down’
“As the economy improves, we are all worried there will be another step down,” she said Dec. 3 in an interview at DuPont headquarters in Wilmington, Delaware. “If you ask me what keeps me awake, that would be it.”
Oak Brook, Illinois-based McDonald’s Corp. said yesterday that U.S. sales fell for the second straight month in November as consumers curbed spending and unemployment trimmed sales at breakfast and lunch.
Bernanke said this week that the weak labor market and tight credit are likely to produce a “moderate” expansion. Speaking to economists in Washington, he repeated a pledge to hold the target rate low for an “extended period.”
Two-year Treasury notes gained the most in five weeks after Bernanke’s Dec. 7 comments. Two-year note yields fell two basis points yesterday to 0.73 percent.
Low interest rates and the prospects for an economic recovery have helped fuel a 61 percent gain in the Standard & Poor’s 500 Index from its 13-year low on March 9. The index is up 3.3 percent so far this quarter.
Rate Outlook
The Fed’s first rate increase will occur in the third quarter, according to the median forecast of economists surveyed this month, taking it to 0.5 percent from the current zero to 0.25 percent range.
The economy contracted 3.8 percent in the 12 months ended June 2008, the worst slump since the 1930s, as home sales and construction collapsed and defaults among subprime mortgage borrowers caused credit markets to seize and led to the demise of Lehman Brothers Holdings Inc.
Consumer spending, which accounts for about 70 percent of the economy, will grow 1.8 percent next year after shrinking 0.6 percent in 2009, the worst performance in 35 years, according to the median estimates in the survey taken Dec. 1 to Dec. 8. Gains averaged 3 percent over the past two decades.
“Housing is the biggest swing sector, as along with a housing recovery comes a lot of consumer durables purchases: vehicles, appliances, furniture,” said Kurt Karl, chief U.S. economist at Swiss Reinsurance Co. in New York.
Jobs Report
Five of this month’s forecasts were submitted prior to the Labor Department’s monthly jobs report on Dec. 4. The figures showed the jobless rate fell to 10 percent in November from a 26-year high of 10.2 percent the prior month. Payrolls fell by 11,000 workers, the smallest decrease in 23 months.
Obama yesterday proposed new infrastructure spending, tax credits for small businesses and incentives to make homes more energy-efficient.
“These targeted initiatives are right and they are needed,” Obama said in a speech in Washington. The proposals would be at least partly funded by $200 billion in savings from the Troubled Asset Relief Program.
By Bob Willis and Alex Tanzi – bloomberg.com
Add A Comment