U.S. unemployment to near 10 percent as slump worsens

Thu Mar 12, 2009 6:14am EDT

By Pedro Nicolaci da Costa

NEW YORK (Reuters) - U.S. unemployment will approach 10 percent as the country endures its worst recession since World War Two, leaving more than 13 million Americans jobless, according to a Reuters poll of economists.

The economy will level out in the third quarter, the results showed, but the poll painted a bleaker picture than a survey conducted just a month ago.

Median forecasts now assume gross domestic product will shrink an annualized 5.3 percent this quarter, following a brutal 6.2 percent decline at the end of 2008.

The recession will continue into the second quarter, moderating to a 2 percent drop, stabilizing sometime this summer. GDP should turn the corner, albeit hesitantly, by autumn.

Analysts say the turbulence plaguing large sectors such as banking and autos means predictions are less reliable than usual.

"The economic outlook remains very uncertain," said Scott Brown, chief economist at Raymond James & Associates. "A bottom is likely by the end of the year, but downside risks continue."

The Reuters poll indicates the jobless rate, already at a 25-year high of 8.1 percent, will climb to 9.6 percent, probably sometime early next year, before receding. An eventual rebound in hiring will probably be mild and erratic.

In this environment, inflation will remain non-existent. Indeed, the consumer price index is expected to fall for the first nine months of this year, with a 2.2 percent decline in the third quarter marking the steepest pullback.

Prices will then climb again into next year, but modestly enough to allow the Federal Reserve to keep interest rates on hold until at least the latter part of 2010.

SPENDER OF LAST RESORT

The federal government has attacked the problem by committing trillions of dollars to help the banks and passing a $787 billion stimulus package aimed at reigniting growth.

Such measures should help with some of the worst effects of the crisis, analysts said, although there has been much debate about what types of stimulus offer the best path to recovery.

"We anticipate a rebound driven by fiscal and monetary stimulus," said Abiel Reinhart, economist at JP Morgan. "Unfortunately, it will take at least three other quarters before improvement in conditions will translate in a rebound for the job market."

This is bad news for both unemployed workers and businesses which rely on Americans' spending. Data on Thursday are expected to show a 0.5 percent decline in retail sales, adding to what was already the most dramatic pullback in spending in decades.

(Polling by Bangalore Polling Unit)

http://www.reuters.com/article/GCA-Economy/idUSTRE52B1KM20090312