Gross domestic product will contract 5.2% in the first three months of 2009, followed by a 1.8% contraction in the second quarter as the labor market dampens the economy, according to the Federal Reserve Bank of Philadelphia’s survey of professional forecasters, released Friday.
The 43 forecasters surveyed lowered their projections from the forecasts of three months ago, when forecasters anticipated GDP falling 1.1% in the first quarter and growing 0.8% in the second quarter. However, participants still expect economic recovery to begin in the third quarter. On a year-over-year basis, growth is expected to be off 2.0% this year and up 2.2% in 2010.
Jobless rates were revised upward, with predictions for 7.8% unemployment this quarter and rising to 8.9% by year end. Previously, forecasters saw unemployment going from 7.0% to 7.7% in that period. Unemployment is expected to average 8.4% this year and 8.8% in 2010.
About 548,000 jobs will be lost each month this quarter, the forecasters project, with 311,200 jobs lost per month in the second quarter and 202,100 in the third quarter. This compares to earlier projections of monthly job losses of 218,800, 108,400, and 7,200 in the first quarter, the second quarter, and the third quarter of 2009, respectively. Recovery in the labor market isn’t expected until next year, when 38,700 jobs are expected to be added per month.
The outlook for core inflation in 2009 and 2010 was reduced, with a 1.2% increase seen in 2009 and 1.6% in 2010, down from the previous estimates of 2.0% over the same periods. The forecasters also see lower core inflation in personal consumption expenditures for 2009 and 2010 — from about 1.8% in both years in the last survey to 1.1% in 2009 and 1.5% in 2010.