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U.S. Recession May Continue Beyond Next Year, Economists Say

2009-03-02 05:51:36

Matthew Benjamin Matthew Benjamin Sun Mar 1, 1:54 pm ET

March 1 (Bloomberg) -- The U.S. recession, now in its 15th month, will probably

continue well into 2010 or beyond, several prominent economists wrote in today

s New York Times.

I find it quite easy to imagine two consecutive years of contraction, Niall

Ferguson, a financial historian at Harvard University, said in one of 11

assessments by economists. I don t rule out two more lean years after that,

he said.

U.S. gross domestic product contracted at a 6.2 percent annual pace from

October through December, more than economists anticipated and the most since

1982, according to a Feb. 27 report from the Commerce Department. Consumer

spending, which comprises about 70 percent of the economy, declined at the

fastest pace in almost three decades.

Any whiffs of growth this year are likely to herald a false dawn because of

the poor financial condition of consumers, wrote Stephen Roach, chairman of

Morgan Stanley Asia. He predicted the economy won t begin to expand again until

late 2010 or early 2011.

The Standard & Poor s 500 Index fell to a 12-year low last week as the

government stepped in for a third time to keep Citigroup Inc. from failing.

Former Federal Reserve Vice Chairman Alan Blinder and William Poole, former

president of the St. Louis Fed, were comparatively optimistic, predicting an

upturn late this year.

Housing must hit bottom at some point, said Blinder, an economics professor

at Princeton University.

Falling prices will restart growth, according to James Grant, the editor of

Grant s Interest Rate Observer.

Shovel-Ready Stimulus

Today s low prices, painful though they may be, are the market s own

shovel-ready stimulus, he wrote. Before you know it, the stock market and the

residential real-estate market, too, will be on their way back up again.

Americans love a bargain, wrote Eric Schmidt, chairman and chief executive of

Google Inc., so progress will come with consumers taking advantage of historic

buying opportunities.

Still, any recovery will be anemic, many of the economists said.

While the technical recession could be over by the end of the year, the

broader credit cycle will likely remain a significant drag on economic activity

well into the next decade, said George Cooper, author of The Origin of

Financial Crises: Central Banks, Credit Bubbles and the Efficient Market

Fallacy.

After severe banking crises, an economy usually takes four years to return to

its previous peak in personal income, according to Carmen Reinhart, an

economist at the University of Maryland.

Nouriel Roubini, the New York University professor who predicted the current

financial and economic crises, said the recession may last a total of 36

months. It s possible, he wrote, that the slump, instead of following a typical

U shape back toward growth, may turn into a more virulent L-shaped near

depression.

To contact the reporter responsible for this story: Matthew Benjamin in

Washington at mbenjamin2@bloomberg.net