Transcripts

When Will The Unofficial Recession Become Official

PAUL KANGAS: Despite all those Fed expenditures, the U.S. economy is still struggling. The Commerce Department said today the economy contracted by half a percent in the third quarter, more than the original estimate of .3 of a percent. As Suzanne Pratt reports, many economists predict this recession could be a long one.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It should come as no surprise to Wall Street, for that matter Main Street that the U.S. is in recession. While there is a panel of experts that officially dates U.S. recessions and it hasn`t yet done so, most forecasters say we`re already in one. Many believe the recession started early this year, with others saying it began in the summer. The big question, however is how long and how deep. Economist Brian Fabri expects GDP to contract 3 percent in the fourth quarter of this year and 4 percent in the first quarter of next year.

BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: I think it`s going to be longer and deeper than anything we`ve experienced in the post World War II period. Clearly, we have not had a cycle recession that has been burdened by this kind of a financial crisis in the last 70 years.

PRATT: A recent poll of economists predicted the U.S. economy measured by GDP would shrink 3 percent in Q four and 1 1/2 percent in Q one of next year. That same survey showed economists do not think the U.S. will start to grow again until the third quarter of next year. T. Rowe Price economist Alan Levenson says conditions will start to improve in the second half of `09, although he doesn`t expect a rapid recovery.

ALAN LEVENSON, CHIEF ECONOMIST, T. ROWE PRICE: This optimism, such as it is and I`m talking about the worst recession since 1981, `82, is based on the massive policy stimulus that`s being thrown at it. The Fed has cut interest rates. It`s pumping money into the economy aggressively and it looks like we`re go to have fiscal stimulus as well.

PRATT: In evaluating the severity of recessions, economists also keep close watch on the nation`s unemployment rate. It peaked at more than 6 percent following the 2001 recession, nearly 8 percent after the 1991 recession and nearly 11 percent after the one in 1982. While millions of Americans are expected to find themselves out of work in this recession, the unemployment rate will probably only hit about 8 or 9 percent. That`s if the government`s rescue plan works.

FABBRI: The risk is it comes too little too late and therefore the recovery gets postponed deeper into 2010, for example and then that`s when the unemployment rate could easily go back to 10 percent.

PRATT: The past two recessions each lasted only eight months. Some economists believe this one could linger as long as a year and a half, making it the longest recession since the great depression. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.