[Marxism] Most Economists Sat Recession has arrived as Outlook Darkens

[Greg McDonald <sabocat59@xxxxxxx>]

Most Economists Say Recession Has Arrived as Outlook Darkens
by Phil Izzo
Thursday, March 13, 2008 provided by WSJ

The U.S. has finally slid into recession, according to the majority  
of economists in the latest Wall Street Journal economic-forecasting  
survey, a view that was reinforced by new data showing a sharp drop  
in retail sales last month.

"The evidence is now beyond a reasonable doubt," said Scott Anderson  
of Wells Fargo & Co., who was among the 71% of 51 respondents to say  
that the economy is now in a recession.

The Commerce Department said Thursday that retail sales tumbled 0.6%  
in February; sales excluding volatile auto and parts decreased 0.2%.  
The decline reflected a sharp slowdown in consumer spending, the  
primary driver of U.S. economic growth, as Americans grapple with  
high gasoline prices and the credit crunch, as well as drops in home  
values and other asset prices.

The survey, conducted March 7 through March 11, marked a precipitous  
shift to the negative from the previous survey conducted five weeks  
earlier. For example, the economists now expect nonfarm payrolls to  
grow by an average of only 9,000 jobs a month for the next 12 months  
-- down from an expected 48,500 in the previous survey. Twenty  
economists now expect payrolls to shrink outright. And the average  
forecast for the unemployment rate was raised to 5.5% by December  
from 4.8% in the previous survey.

Much of the gloom stemmed from last Friday's employment report, which  
showed a loss of 63,000 jobs in February, the second consecutive  
monthly decline. "My recession call comes from the employment data,"  
said Stephen Stanley of RBS Greenwich Capital. "It struck me as a  
recessionary number."

Twenty-nine of 55 respondents said they expect the economy to  
contract in the current quarter and 25 expect it to do so in the  
second. The average of all the forecasts is for meager growth -- just  
0.1% at an annual rate in the current quarter and 0.4% in the second.

Although the classic definition of recession is two consecutive  
quarters of declines in the gross domestic product, Mr. Stanley  
pointed out that the National Bureau of Economic Research, the  
nonpartisan organization that is the official arbiter of when  
recessions begin and end, doesn't necessarily follow that definition.  
"If you go back to the 2001 recession, there was only one negative  
GDP quarter, and there might not even be one negative quarter in this  
recession," he said.

The economists also expressed growing concerns that a 2008 recession  
could be worse than both the 2001 and 1990-91 downturns. They put the  
odds of a deeper downturn at an average 48%, up from 39% in the  
previous survey. Mark Nielson of MacroEcon Global Advisors said that  
"we recognize the previous two recessions were mild and, if a  
recession does occur, it is likely to be slightly worse than the  
previous two."

Amid the concerns about the economy, respondents expect more action  
from the government and the Federal Reserve. Some 63% said the use of  
public money to deal with the housing crisis is now likely or  
certain, while on average they expect the Fed to lower its benchmark  
federal-funds rate to 2% by June from the current 3%.

Futures markets Thursday priced in certainty of at least a 0.5  
percentage point cut in the Fed's rate target and up to 90%  
probability of a 0.75 point cut. Officials had, prior to this week,  
appeared unconvinced a 0.75 point cut was needed, given signs that  
inflation psychology is worsening. But those views may have been  
affected by continued upheaval in credit markets and the weak retail  
sales and employment data. Market participants say this would be a  
risky time to cut less than investors expect. The Fed will have to  
weigh the urgency of addressing the continued credit crunch against  
the risk of appearing unconcerned about inflation.

However, the Fed's job may be complicated by inflation concerns. The  
economists raised their average forecast for consumer-price increases  
to 3.5% by June, up from 2.7% in the prior survey. The change  
reflects persistently high oil prices and a 4.3% jump in prices last  
month from the year before. February's CPI data will be released  
Friday, and economists surveyed by Dow Jones Newswires expect a 4.5%  
increase from a year ago.

Even as the Fed has made clear that it is most focused at the moment  
on threats to economic growth, some central bank policy makers have  
continued to voice concerns about the possibility of resurgent  
inflation. The central bank has used unconventional methods to boost  
liquidity in the market; its goal is to limit the use of its bluntest  
weapon, interest-rate reductions, which can fuel price pressures.

Meanwhile, most forecasters expect a recovery to begin in the second  
half of this year, as the government's stimulus package and the Fed's  
interest-rate cuts begin to spur the economy. By the end of the year,  
the economists expect inflation still to be hovering at an  
uncomfortably high 2.7%, raising the question of when the Fed will  
start raising rates.

Some 84% of economists in the survey said the Fed was too slow to  
raise interest rates in 2003, and policy makers don't want to repeat  
that mistake. But "it's going to take some time even under the best  
of circumstances before the Fed can be comfortable that the economic  
situation has stabilized," said Bruce Kasman of J.P. Morgan Chase.

One thing is clear: The darkening economic outlook has made Ben  
Bernanke's job less secure, especially with a new president about to  
enter the White House. The economists gave the Fed chairman just a  
59% chance of being reappointed in 2010. "If a Democrat is elected he  
won't be reappointed, and [presumptive Republican presidential  
nominee John] McCain may opt for another, too," said David Resler of  
Nomura Securities. "The problems occurred on his watch," added Ram  
Bhagavatula of Combinatorics Capital.

Write to Phil Izzo at philip.izzo@xxxxxxx
Copyrighted, Dow Jones & Company, Inc. All rights reserved.

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