Leading Economists Say Worst Is Over

Declarations that the recession is over are becoming more official. The Federal Reserve released a statement in late September that data "suggest economic activity has picked up following its severe downturn."

 

Now, a recent survey of 43 leading economists by the National Association for Business Economics (NABE) finds that 81% of university, research, corporate and Wall Street economists say they believe the recovery has begun, with a 3% gain in Q-3 2009.

 

But, the recovery will be slow and painful for many for some time to come. The sectors at risk are labor and housing, says NABE.

 

About 54% of the economists agree that the 7.2 million jobs lost in the recession won’t be regained until 2012, while 38% predict job recover to take longer than that. The unemployment rate will reach 10% by the first quarter of 2010, before drifting back down to 9.5%.

 

And housing isn’t out of the woods yet, but it’s much closer than jobs. One-third of the surveyed economists say housing prices will bottom in early 2010, while about 25% say the bottom will be Q-4 2009.

 

The benefit for consumers is that the economists believe that the Federal Reserve will keep short-term interest rates (the rates at which FDIC banks borrow money from the Fed and each other) low through the end of the year, which should pass along to consumers in the form of low credit rates.

 

Despite the specter of unemployment, borrowing costs to own a home were at near-historic levels, in mid-October, below the 5% watermark for several weeks, further putting housing at the most affordable levels in years.

 

Housing prices will continue to be pressured by Alt-A and prime loan foreclosures, where people have lost jobs and can’t continue their house payments. Further, it’s unknown how many sellers are on the sidelines waiting for the market to improve before putting their homes up for sale.  

 

Housing prices should rise modestly – 2% in 2010, says NABE.