Economists Point to Second Half Growth

Washington, DC, April 10, 2009--Consumer spending and a recovery in the housing sector recover should help the economy begin turning around in the second half of the year, but unemployment will rise well into 2010, according to the Blue Chip Economic Indicators.

The survey of private economists released on Friday showed that 86 percent of respondents believe that the economic downturn will end in the second half.

"Real GDP contracted very sharply during the first quarter of this year and will continue to shrink, albeit more slowly in the second quarter before turning very modestly higher in the third and fourth quarters," the survey said.

Much of the anticipated turnaround in the economy will be driven by some improvement in consumer spending, housing, business inventories and exports. Yet, significant growth was not expected until the second half of 2010.

Gross domestic product plunged at a 6.3 percent annualized rate in the fourth quarter of 2008, the steepest quarterly decline since 1982. The economic downturn will next month become the longest U.S. recession since the Great Depression.

According to the Blue Chip survey, consumer spending which accounts for over two-thirds of U.S. economy activity, will be supported by tax cuts from the federal $787 billion stimulus package, the extension of unemployment benefits and lower inflation.

But even with the anticipated improvement in the economy's fortunes, companies were expected to continue laying off workers well into 2010, the survey showed.

"The huge output gap created by the recession implies that unemployment will continue to rise well into 2010," it said.

Participants in the Blue Chip survey believe the unemployment rate will not hit its cyclical peak until the second half of next year. The survey forecast the unemployment rate peaking at 9.8 percent.

The survey of 52 economists conducted between April 1-2 predicted that real gross domestic product would contract by 2.6 percent this year on a year-on-year basis, beating the 1.9 percent decline in 1982 that had marked the largest annual contraction in post-war period.