Royal Dutch Shell Plc  .com Rotating Header Image

THE WALL STREET JOURNAL: Most Economists in Survey Say Recession Is Here

Poll Shows Sharp Drop
In First-Half Forecasts;
Retail Sales Decline
March 13, 2008; Page A14

A WSJ survey of economists reveals that 71% of those surveyed believe Americans are currently in a recession.

Economists in the latest Wall Street Journal forecasting survey are increasingly certain the U.S. has slid into recession, a view reinforced by new data showing a sharp drop in retail sales last month.

“The evidence is now beyond a reasonable doubt,” said Scott Anderson of Wells Fargo & Co.

The Commerce Department said yesterday that retail sales fell 0.6% in February; sales excluding the volatile auto and auto-parts categories fell 0.2%. The declines reflect a sharp slowdown in consumer spending, which accounts for more than 70% of U.S. economic activity, as Americans grapple with high gasoline and food costs and declines in home values and other asset prices.

The survey marked a precipitous shift toward pessimism from the previous survey, conducted five weeks earlier. The economists now expect nonfarm 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% in December, up from the current 4.8%.

Fueling the gloom: last Friday’s employment report, which showed a loss of 63,000 jobs in February, the second consecutive monthly decline. Twenty-nine of 55 respondents said they expect the economy to contract in the current quarter, and 25 expect it to do so in the second.

The Wall Street Journal surveys a group of 55 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: economists, on average, forecast meager economic growth — just 0.1% at an annual rate in the current quarter, and 0.4% in the second.

Although the classic definition of recession is two consecutive quarters of declines in the gross domestic product, Stephen Stanley of RBS Greenwich Capital pointed out that the National Bureau of Economic Research, the nonpartisan organization 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% 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% by June from the current 3%.

Fed policy makers meet on Tuesday, and futures markets are fully pricing in at least a 0.5-percentage-point cut in the rate and indicating a 90% 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.

But those views may have been affected by continued upheaval in credit markets, as well as weak retail sales and employment data. Market participants say this would be a risky time to cut rates less than investors expect. The Fed will have to weigh the urgency of addressing the credit crunch against the risk of appearing unconcerned about inflation.

The consumer-price index for February will be released today, and economists surveyed by Dow Jones Newswires expect a 4.5% increase from a year earlier.

Most forecasters 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 2.7%, raising the question of when the Fed might start raising rates.

Some 84% of economists in the survey said the Fed was too slow to raise interest rates in 2003 and will want to avoid that mistake. Still, “it’s going to take some time even under the best of circumstances before the Fed can be comfortable that the economic situation has stabilized,” said Bruce Kasman of J.P. Morgan Chase.

The survey 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. The economists gave the Fed chairman just a 59% chance of being reappointed in 2010. “If a Democrat is elected, he won’t be reappointed, and [presumptive Republican presidential nominee John] McCain may opt for another, too,” said David Resler of Nomura Securities.

“The problems occurred on his watch,” added Ram Bhagavatula of Combinatorics Capital.

February’s decline in retail sales, which followed a 0.4% increase in January, raises the likelihood that the overall economy will contract in the first quarter.
Many retailers are bracing for tougher times. Even if the current downturn doesn’t yet meet the technical definition of a recession, “it certainly feels like a recession based on consumer sentiment and confidence reaching record lows,” Men’s Wearhouse Inc. chief executive George Zimmer said earlier this week.

“The average consumer is feeling economic pressure as they experience rising prices in fuel and basic staples, the effects of declining home prices, which for most individuals represent their single largest asset, not to mention the possibility of foreclosure on their home,” Mr. Zimmer said.

Categories tied to housing took some of the biggest sales hits, but the declines were widespread: Sales at department stores dipped 0.2%, while restaurant sales fell 0.4%.

Consumers are pulling back in part because of a weakening job market. Initial claims for unemployment benefits last week were unchanged at 353,000 from the week before, the Labor Department said yesterday. That suggested employers are slowing their hiring rather than making big layoffs. Continuing unemployment claims rose 7,000 to 2.84 million for their fourth straight gain.

Meanwhile, business inventories increased 0.8% in January, suggesting production slowdowns ahead as the economy slows. Import prices rose 0.2% in February from a month earlier and were up 13.6% from the year before, reflecting the weak dollar and rising commodity prices globally.

–Greg Ip contributed to this article.

Write to Phil Izzo at [email protected] and Sudeep Reddy at [email protected] and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

0 Comments on “THE WALL STREET JOURNAL: Most Economists in Survey Say Recession Is Here”

Leave a Comment

%d bloggers like this: