US 'in a recession' say forecasters

Approximately 96 percent of the economists polled believe that a recession has started, and nearly three-fourths think it could persist beyond the first quarter of 2009.

Under one definition, a recession happens when the economy shrinks for two quarters in a row. The economy contracted 0.3 percent in the third quarter as battered consumers cut back sharply on spending, the government reported last month. It was the worst showing since 2001, when the country was last in a recession.

NABE economists, among other experts, predict activity will continue to shrink in both the final quarter of this year and the first quarter of next year as weary consumers hunker down further under the stresses of rising unemployment, shrinking nest eggs and falling home values.

"Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit market stresses and evidence of spillover to the real economy," said NABE president Chris Varvares, president of Macroeconomic Advisers.

NABE economists are now forecasting the economy to shrink at a 2.6 percent pace in the final quarter of this year and then at a 1.3 percent pace in the first three months of 2009. The new projections marked downgrades from the association's previous survey, which called for growth of just 0.1 percent in the final quarter of this year and a 1.3 percent growth rate in the following quarter.

For all of 2008, the association's economists are predicting the economy's growth will slow to 1.4 percent, down from 2 percent in 2007. If the new, lower projection proves correct, it would mark the weakest performance since the 2001.

The picture would turn worse in 2009. The NABE economists are projecting the economy will jolt into reverse, shrinking by 0.2 percent for all of next year. If that happens, it would mark the worst showing since 1991, when the country was starting to pull out of a recession.

With the economy losing traction, the nation's unemployment rate will climb to 7.5 percent by the end of next year, the economists predict. Other analysts think it could rise to 8 percent at that time, or even hit 10 percent or higher if a U.S. auto company were to go under.

A recession has many attributes that can occur simultaneously and can include declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions are the result of falling demand and may be associated with falling prices (deflation), or sharply rising prices (inflation) or a combination of rising prices and stagnant economic growth (stagflation). A severe or prolonged recession is referred to as an economic depression. Although the distinction between a recession and a depression is not clearly defined, it is often said that a decline in GDP of more than 10% constitutes a depression.[7] A devastating breakdown of an economy (essentially, a severe depression, or hyperinflation, depending on the circumstances) is called economic collapse.