Worst Recession Since the 30s Will end in 2009
Economists at Wells Fargo predict the economy will improve by the second half of 2009.
“The ongoing impact of $2 trillion in government stimulus, with other factors such as pent-up consumer demand and returning consumer confidence, will finally lead to a turnaround, and the third quarter of next year will be “better than expected” by many,” says Dr. Jim Paulsen, chief investment strategist of Wells Capital Management. “It’s like you’re at a cookout and you’re trying and trying to get your charcoal going and you keep squirting on lighter fluid and all of a sudden it goes ‘poof!’”
Dr. Scott Anderson, senior economist for Wells Fargo & Company, predicted that the housing sector will lead the way. “One bright note is that the sector that led the economy into this morass is about to turn the corner, perhaps as soon as this summer, and will start to lead us out,” Anderson said.
Dr. Eugenio Aleman, senior economist for Wells Fargo & Company, said he was most concerned that the injecting of hundreds of billions of dollars into the economy through the financial sector – is not helping those who need it most.
“Current monetary policy will help only those households that do not need help – those that have plenty of money and have a stable job,” he said. “They will refinance, buy homes and consume. It will not help those who are struggling to make ends meet, or have lost their jobs or may soon lose them, because no financial institution is going to lend them money to buy a home, no matter what the interest rate is.” He said it is up to the new administration to help these households through fiscal policy, with government spending that will create jobs.
The current job market is one of the worst in decades, with another 3.7 million jobs expected to be lost this year. That means that job losses in this recession will total 5.5 million, twice as many as were lost in the 1981-1982 recession, the second worst since World War II. The unemployment rate will rise to 8.8 percent by the end of 2009, Wells Fargo predict and will average 8.2 percent for the year. Gross domestic product will decline in the first two quarters before expansion resumes in the third quarter.
Economist Paulsen blamed “fear mongering” by government officials to persuade Congress to pass the $700 billion Troubled Asset Relief Program in the fall for the depth of our problems today. That, he said, “froze everyone in their tracks” and resulted in “economic paralysis.”
Anderson said the U.S. government will provide the primary support for the economy in 2009. This will come in a stimulus package from the new administration with infrastructure spending and middle-class tax cuts, plus “natural stabilizers” such as unemployment benefits, food stamps and other welfare payments. The infrastructure spending will be too narrow to help everyone, he said – but the middle-class tax cuts will offer more sustained consumer spending than recent one-time stimulus checks. Savings rates may also rise to 5 percent.