Economic Recovery In Sight, Expected to Happen Slowly – Home Sales Rise

More than nine out of ten economists agree that the recent recession will come to an end at some time this year, though few expect it to happen smoothly. This from a report released Wednesday by the National Association for Business Economics(NABE)positive outlook is shared by Federal Reserve Chairman Ben Bernanke.

The recession, the nation’s longest since the end of World War II, began in December of 2007. Almost ¾ of the forecasters polled believe the recession’s end will occur in the third quarter. About one in 5 expect the recovery in the fourth quarter, and the rest expect it to come in the first three months of 2010.

A major cause of the recession is the considerable financial crisis which began last fall and was the worst the country has seen since the Great Depression. According to economists, recessions brought on by such financial crises typically linger. Meanwhile, the job rate is expected to continue climbing, even if a recovery is ongoing, as companies will hesitate to revert to full staff levels until an economical recovery is well under way.

Forecasters expect the average jobless rate for the year to climb over 9%, a significant increase over the average for 2008 of just under 6%, and an increase over the current rate which is the highest in the last 25 years. Should those predictions hold true, it will be the highest yearly average since 1983, when the US was recovering from the last major recession. A portion of the respondents from the NABE survey predict the jobless rate could climb as high as 10.6% during 2010’s second quarter. The NABE survey represents 45 economists and was taken between the 27th of April and the 11th of May.

General Motors, DuPont, and Clear Channel Communications were some of the companies who announced large layoffs during the period when the survey was conducted. The continued rise in unemployment will hinder consumer confidence, which is a major factor in the overall state of the economy, thus hold the rate of any recovery in check. And due to the impact the recession has had on the typical household’s net worth, via property values and investment portfolios, most consumers will likely remain cautious for the foreseeable future. More than 7 of 10 forecasters predict consumers will remain thrifty for the next five years or more. The rate of personal savings of Americans climbed to 4.2% in March, the first time in a decade the number has been higher than 4% three months in a row.

Despite the positive outlook of economists, the overall performance of the economy for 2009 is expected to be poor.

The economy, as a whole, is expected to shrink by almost 3% this year. This is a considerably bleaker outlook than in February, when a decline of less than 2% was forecast. Should the economists be correct, it will mark the largest one year decline in the US economy since 1946, when the economy shrunk by 11%.

However, the worst reduction in overall economic activity is believed to be over. During both 2008’s last quarter and the first quarter of 2010, the annualized pace of economic reduction was over 6%. It was the worst decline in the economy over a 6 month period in the last 50 years.

For the present quarter of April to June, the forecasters expect the economy to shrink by slightly less than 2%. Then the economy is expected to begin growing again, by just under 1% in the third quarter and almost 2% in the last quarter.

The projected rate of growth for the last two quarters of 2009 have come down since late February because businesses who saw their sales and profits plummet during the recession are expected to remain hesitant to increase investments for some time.

The expected economic recovery was also boosted by the recent $786 billion stimulus package issued by the President. The package includes increased govt. spending, tax cuts, Federal ordered low interest rates, and govt. programs designed to encourage banks to loosen lending practices.

The majority of the economist also expect home sales to level out in the middle of the year, which should also help the economy stabilize.

Also a good sign, previously owned home sales rose by almost 3% in April, as investors and bargain hunters took advantage of bargains created by foreclosure listings. The median sales price for April, $170k, was almost 15% lower than that of April 2008. New home sales are expected to be reported Thursday.

2010 is expected to show an economic growth of about 2%. This is slightly lower than the 2.4% growth expected back in February. With the pace of recovery slow, the Fed is expected to keep interest rates low until 2010’s 2nd quarter.