What The WSJ’s Survey Of Economists Shows

The Wall Street Journal is out with its latest survey of economists’ prognostications. This one polled 52 economists. I think they do this about once a quarter or thereabouts.

The previous survey was published in September and the majority saw a turnaround in the first quarter of this year. The mood is decidedly more bearish now with most calling for a turn in the third quarter and anemic growth in the second half of the year. Some, however, consider this much too optimistic.

“The consensus is usually late to the party,” said Brian Fabbri, chief economist at BNP Paribas, noting that he was one of the few to forecast the current recession two years ago. Now, he is one of the five who sees GDP declining through the end of 2009, along with Joshua Shapiro, chief U.S. economist at forecasting firm MFR Inc., Paul Ashworth of Capital Economics, Swiss Re chief U.S. economist Kurt Karl and retired Vanderbilt University professor J. Dewey Daane.

“We’re in trouble,” Mr. Fabbri said. “We don’t have sufficient economic plans at present to resolve the banking system or the financial crisis, and the stimulus package seems loaded for 2010.” He added that the global nature of the downturn along with U.S. consumers’ increased saving and lenders’ tightened standards all stand in the way of a quick recovery.

None of the forecasters expect good news on employment.

Forecasters were also asked how many jobs they expect the U.S. to lose in 2009, and the average response called for a loss of nearly 183,000 per month. But when asked how that would look absent the stimulus package, they saw a loss on average of about 270,000 per month. Employment often lags behind changes in U.S. economic growth, and if the labor market behaves as it has during the past two recessions, job losses and unemployment would likely rise for many months after GDP growth turns positive. On average, economists see the unemployment rate hitting 8.8% by December, from its current 7.6%.

Mr. Shapiro, who has been bearish on the 2009 outlook for months, sees unemployment hitting nearly 10% by the end of the year and said he expects the economy to shrink through 2010. “We just think the enormity of the problem is not recognized by most people,” he said. “If you look at the magnitude of this problem, the amount of debt relative to income, the credit and asset bubbles that have now reversed and it’s only just started, why is it going to end two quarters from now?”

“To say ‘off we go’ in the second half of the year, I think that begs incredulity; I just don’t buy it,” he said. “It’s a global thing too—trade volumes are just cratering and our exports are getting pounded. There’s nowhere to hide.”

Not all of those surveyed were this pessimistic. A few felt that as soon as greater clarity concerning government actions was achieved that some strong pro-growth spirits might be released.

But others are standing by their forecasts for a second-half recovery. Joseph Carson, an economist with AllianceBernstein, says uncertainty about government policy is holding back risk-taking behavior—for now. “Once we get clarity on the fiscal and financial packages, those two things together could end up jump-starting the economy,” he said. He forecast that GDP will decline at a 3% rate in the current three months, then return to growth by April and surge to a 5.7% annualized pace in the closing months of the year. Other bulls include Brian Wesbury of First Trust Advisors and James Smith, a professor at Western Carolina University, who both see GDP growing at a 4% rate by the end of the year.

I’m inclined to throw in with the guys who see somewhat robust growth by the middle of the year (it might even come sooner). By the time the government gets done with the stimulus bill, TARP ll or whatever they call it and goosing housing via Fannie and Freddie well over a trillion dollars is going to get thrown at the problem. That absurd amount of money is going to have an impact no matter how poorly the programs are designed. Enough stimulus always stimulates. Maybe not for the long term but certainly for the moment.

By the way, the economists were more or less in agreement on one thing. Sixty eight percent of them think that equities are a good buy right now. I’m not sure that isn’t a sell signal.  

more: here

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