Economists confirm US recession: WSJ

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New York, March 14:: Economists are increasingly certain that the US has slid into recession, according to a latest survey by the Wall Street Journal.

Following months of speculation about the dreaded 'R' word, the new survey shows a "precipitous shift" toward pessimism from the previous one conducted five weeks earlier and is reinforced by new data showing a sharp drop in retail sales last month, the paper says.

Thirty-six of 51 respondents, or more than 70 per cent, said in a survey conducted March 7-11 that the economy is in recession.

The Commerce Department had said earlier this week that retail sales fell 0.6 per cent in February; sales excluding the volatile auto and auto-parts categories fell 0.2 per cent.

The declines, the Journal says, reflect a sharp slowdown in consumer spending, which accounts for more than 70 per cent of US economic activity, as Americans grapple with high gasoline and food costs and declines in home values and other asset prices.

The economists, it said, now expect non-farm payrolls to grow by an average of just 9,000 jobs a month for the next 12 months -- down from a previously expected 48,500.

Twenty economists expect payrolls to shrink outright. On average, the economists predicted the unemployment rate will be 5.5 per cent in December, up from the current 4.8per cent. The economists, on average, forecast meager economic growth -- just 0.1 per cent at an annual rate in the current quarter, and 0.4 per cent in the second, the survey shows.

Although the classic definition of recession is two consecutive quarters of declines in the gross domestic product, Stephen Stanley of RBS Greenwich Capital was quoted as saying that the National Bureau of Economic Research, the nonpartisan organisation that is the official arbiter of recessions, doesn't always strictly follow that definition.

"If you go back to the 2001 recession, there was only one negative GDP quarter, and there might not even be one negative quarter in this recession," he said.

Almost half the economists surveyed said a recession this year could be worse than the 2001 and 1990-91 downturns. Amid the rising concerns, respondents expect more action from policy makers.

Some 63 per cent said the use of public money to deal with the housing crisis is now likely or certain, while on average they expect the Federal Reserve to lower the target for its benchmark federal-funds rate to 2 per cent by June from the current 3 per cent.

Fed policy makers, the Journal said, meet on Tuesday, and futures markets are fully pricing in at least a 0.5-percentage-point cut in the rate and indicating a 90per cent probability of a 0.75-point cut.

Officials had, before this week, been unconvinced that a 0.75-point cut was needed, given signs that inflation psychology is worsening, the report added.

But those views, it says, may have been affected by continued upheaval in credit markets, as well as weak retail sales and employment data.

Market participants were said this would be a risky time to cut rates less than investors expect. Most forecasters, the Journal said, expect an economic recovery to begin in the second half of this year, as the government's economic-stimulus package and the interest-rate cuts begin to spur the economy.

By the end of the year, they expect inflation to be running at an uncomfortably high 2.7percent, raising the question of when the Fed, the Central bank of the United States, might start raising rates.

Some 84 per cent of economists in the survey said the Fed was too slow to raise interest rates in 2003 and will want to avoid that mistake.

The survey, the report says, suggests the darkening outlook may have made Fed Chairman Ben Bernanke's job less secure, especially with a new president coming on the job in less than a year.