The economic recession will end during the third quarter of this year, but high unemployment and large federal deficits will continue, according to the Economic Advisory Committee of the American Bankers Association.
The committee cited consumer spending stabilizing in the first half of this year, allowing businesses to reduce costs and inventories, as well as reducing layoffs and investment spending cutbacks. In combination with the stimulus and an improvement in the financial markets, it is likely the economy will expand in the second half of the year.
Bruce Kasman, committee chairman and chief economist for New York-based JPMorgan Chase & Co. (NYSE: JPM), said the economy will return to growth, but not health.
“Growth in the coming quarters is likely to gather momentum but will not prove sufficiently robust to undo much of the severe damage done to our labor markets and public finances,” Kasman said in a news release.
For the third quarter, the committee forecasts inflation-adjusted gross domestic product will return to positive growth, picking up to a more than 3 percent pace by the second half of 2010.
Also, the committee is projecting an end to the three-year downturn in the housing market, with housing starts rising later this year and home values moving up modestly in 2010.
“Lower prices and low mortgage rates have greatly improved the affordability of homes,” Kasman said. “A recovery in the housing sector will be an important contributor to economic growth.”
However, credit will remain tight and bank economists said jobs will continue to be lost. Unemployment is expected to peak at 10 percent nationally and remain at or above 9.5 percent through next year. Oh by the way Georgia just hit 9.7%.
Budget deficits are expected to remain well above $1 trillion this year and next year. The 13-member committee forecasts the 10-year Treasury bond yield will stay in the 3.75 percent to 4.25 percent range through next year because core inflation is forecast to fall towards 1 percent. However, the committee is concerned about the rising trend in federal debt and the implications for inflation risk beyond 2010.
I think I agree with this economic assessment based on what I see in the world markets and large industrial nations.
