NABE survey indicates most economists now believe U.S. recession's started WASHINGTON (MarketWatch) -- The U.S. is in for a "prolonged" recession dragging into 2009, the National Association for Business Economics says. In its latest survey, the organization sees a contraction in inflation-adjusted gross domestic product of 2.6% in the cards for the fourth quarter, with the weakness carrying well into next year. A separate survey by MarketWatch shows economists more pessimistic, expecting GDP to contract at a 3.5% pace in the fourth quarter. With a small GDP contraction of 0.3% on the books for the 2008 third quarter, such a forecast would satisfy the definition of the U.S. economy being in recession -- two consecutive quarters of negative growth -- at the end of the year. A total of 96% of the economists surveyed by NABE believe that a recession has begun. Meanwhile, full-year GDP growth rates are pegged by NABE at 0.2% for 2008 and 0.7% for 2009. "This would be the slowest growth over a two-year period since the early 1980s," noted NABE President Chris Varvares, the president of St. Louis-based Macroeconomic Advisers. "Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit-market stresses and evidence of spillover to the real economy," Varvares said in a statement as NABE released the results of its November survey. NABE's survey also shows respondents now seeing the nation's unemployment rate rising to 7.5% by the end of 2009, up from an October 2008 rate of 6.5% -- a 14-year high. The peak unemployment rate for the current downturn had previously been projected at 6.2%, before the government's report on employment came in much worse than anticipated, NABE said. See full story on October employment. Job losses are expected to persist through the third quarter of 2009, before the employment picture begins to improve. In addition, the survey showed that the median forecast among business economists is for the Federal Reserve to make no further interest-rate cuts, keeping the key benchmark rate at 1% until what NABE called a "modest rate hike" is implemented during the fourth quarter of 2009. MarketWatch's survey indicates a pair of rate cuts, each of a quarter of a percentage point, are in the offing for the Fed's policy meetings scheduled for Dec. 16 and Jan. 28. Rounding out the highlights of the latest survey, U.S. housing demand may show signs of stabilizing, although both housing prices and housing starts will likely remain weak, the NABE respondents said. They also see credit conditions remaining tight through the first half of next year. Moreover, they foresee the federal budget deficit hitting $576 billion during the government's 2009 fiscal year, in part reflecting spending tied to the Emergency Economic Stabilization Act and perhaps further stimulus measures, and, in light of the ecnomic weakness, are projecting that inflation will be well contained in the U.S. economy during 2009.

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