Recession will weigh on US economy for years

WASHINGTON, USA: The worst recession since the Great Depression has left a scorched landscape that will weigh on the American labour market and the broader economy for years to come, according to the latest Wall Street Journal forecasting survey.

The 48 surveyed economists expect the US economy to bounce back from four quarters of contraction with 3.1 per cent growth in gross domestic product at a seasonally adjusted annual rate in the just-ended third quarter, the leading financial daily said.

Expansion is seen continuing through the first half of 2010, though at a slower rate. But the massive downturn means the labour market will take years to heal.

On average, the economists don't expect unemployment to fall below 6 per cent until 2013; unemployment hit 9.8 percent in September, the Journal said.

The labour market's tough road was also underscored by Thursday's report on weekly applications for unemployment insurance.

The Labour Department reported that initial claims fell 33,000 to 521,000 in the week ended Oct 3. The number of people collecting unemployment insurance also fell, but remained above six million.

The decrease in continuing claims likely reflects people exhausting their unemployment benefits after several months of looking for work in vain, the Journal said.

On average the economists expect the unemployment rate to peak at 10.2 percent in February.

The Journal said persistently high unemployment could prove a political hot potato not only for the 2010 midterm elections for Congress but also for the 2012 presidential election.

While nine of the 46 economists who answered a question on the subject supported tax cuts for employers and seven backed tax incentives for hiring, nearly a third said the government shouldn't do anything. Just four said the government should boost spending.

"It's time to let the business cycle take over," said Stephen Stanley of RBS.

The existing $787 billion stimulus has raised concerns about the deficit, with almost three-quarters of respondents saying taxes will have to be raised on those making less than $250,000 at some point in the next six years.

The Journal said some economists worry the economy will turn down again over the next 12 months, leading to a so-called double-dip recession. That "would be lethal", Nicholas S. Perna of Perna Associates.

©IANS