Sunday, November 16, 2008

Is this the bottom?

I've become a bit frustrated with news reports about the economy, which have often carried pessimism to extremes. I realize that bad news sells better than good (TV news has long been guided by the mantra "If it bleeds, it leads"), and there certainly is no basis for dancing in the streets; but comparisons to the Great Depression (25%+ unemployment) seem a bit premature (to put it kindly) when inserted into articles reporting that the unemployment rate has risen to 6.5%).

I thought, therefore, that I would pass on an item on some forecasts by people who, unlike journalists, actually know what they're talking about -- the Wall Street Journal's quarterly survey of leading economists. It's certainly not good news, except in comparison with what your local paper is reporting. A few of the consensus findings:
  • GDP, which declined 0.3% in the third quarter, will hit a nasty -3.0% this quarter. It will be a little better (but still bad) in the first quarter of 2009: -1.5%. Then it will be flat (+0.3%) in Q2, and the return to modest growth in the second half (Q3: +1.6%, Q4: +2.1%).
  • Employment, as we've seen in recent recessions, will be slower to recover -- they predict 7.5% in June 2009, and 7.7% in December.
  • Oil is a bright spot, since the consensus is that the price will stay below $65/barrel through 2009. Inflation will be below 2%.
  • Housing will stay bad (which means I'm stuck in my house for another year at least),with prices dropping another 3.5%.
Again, this is not at all what any of us would like to see as an economic forecast. But I point it out only because it is nowhere near the "sky is falling" that we often read and hear.

Here's a write-up on the survey by one of the economists who participated in it. He's slightly more pessimistic than the consensus (he forecasts unemployment topping at 8.5%), but the main point of his piece is that the recessions of 74-75 and 81-82 are far more accurate comparisons than the 1930s.

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