US recession may end in third quarter

The worst U.S. recession since the Great Depression will probably end in the third quarter, but there is uncertainty over the speed and duration of the economic recovery, according to the most recent survey of private economists.

The Blue Chip Economic Indicators survey of private economists released on Monday showed about 90 percent of the respondents believed the economic downturn would be declared to have ended this quarter.

This upbeat assessment followed recent government data showing gross domestic product (GDP) contracted at a shallow 1.0 percent rate in the second quarter after sinking 6.4 percent in the January-March quarter.

Recent data, including housing and key labor market indicators, have suggested a bottoming in the recession and the the economy close to turning the corner.

“Debate now centers on the speed, strength and durability of the recovery,” the survey said.

It showed nearly two-thirds of respondents believed the economy was set for a U-shaped recovery, marked by below-trend growth in gross domestic product before stronger growth took hold in the second half of 2010.

About 17 percent of the respondents anticipated a V-shaped rebound, where growth pulled back to its trend rate on a sustained basis, while the same percentage fretted that a W-shaped recovery could follow, the survey showed.

“In their view, GDP growth will pop higher for a quarter or two only to falter again before a lasting recovery takes hold,” the survey said.

Growth in the second half was expected to be supported by a reduction in the pace of business inventory liquidation, marginal improvements in consumer spending and residential investment. The survey predicted non-residential investment would remain a drag on GDP.

Despite the improved economic picture, unemployment was likely to remain a problem, with jobless rate predicted to peak at just over 10 percent late this year or early 2010, the survey showed. It was seen falling only slowly.

Government data on Friday showed the unemployed rate nudged down to 9.4 percent in July from 9.5 percent in June, but mostly because many people dropped out of the labor force.

“Indeed, about 70 percent of the panelists believe the jobless rate will not dip below 7.0 percent on a sustained basis until the second half of 2012 or later,” the survey said.

The sluggish labor market, together with excess capacity in many business sectors were seen dampening inflation pressures.

“Consumer price inflation excluding food and energy costs will increase by slightly less n 2010 than in 2009,” the survey said.

Source: Reuters

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