The current US downturn will be the longest in three decades, and deficient consumer spending may be the worst ever, as per economists surveyed by Bloomberg News. After dropping at a 3.1% pace in the third quarter, consumer spending will fall 2.9% this quarter and 1.3% in the first three months of 2009, according to the survey median. Spending, which accounts for more than two-thirds of the economy, has never fallen for three consecutive quarters in the postwar era. The US economy is estimated to shrink at a 3% annual rate in Q4-08 and decline at 1.5% pace in Q1-09. Following last quarter's 0.3% drop, the slump would be the longest since 1974-75. Declines in household spending will continue through 2009, as the worst financial crisis in seven decades forces employers to keep cutting payrolls on top of the 1.2 million jobs already lost this year.
The current slump is estimated to be the most serious in a quarter century as the lack of credit causes a reinforcing, vicious circle of declines in confidence, spending and hiring. Falling demand will cause an even bigger increase in unemployment than projected last month. The survey forecasts that the jobless rate will rise to 7% in Q1-09, up from last month's forecast of 6.6%, and will rise to 7.7% by the end of 2009, the highest level since 1992. Employers cut 240,000 jobs last month and the total number of unemployed Americans jumped to 10.1 million, the highest level in a quarter century. A combination of the credit crunch and the rapid decline in consumer spending were the two drivers behind the weakening employment outlook. The economic slump is contributing to a plunge in commodity prices that spells good news for inflation. Consumer prices will rise 1.8% next year, the smallest gain since the last official recession in 2001, after increasing 3% this year. The diminishing threat of inflation will give the Federal Reserve leeway to lower interest rates again, the survey showed. The benchmark rate, now at 1%, is likely to fall to 0.5% by March, its lowest level ever.
US automakers have been among the hardest hit by the slump in spending. Vehicle sales plunged in October for a 12th straight month, the longest streak in 17 years, overwhelming efforts by General Motors Corp., Ford Motor Co. and Chrysler LLC to cut costs by trimming payrolls and shutting factories.
13-Nov-08 
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