AP survey of economists show increasing pessimism in long-term projections

posted at 10:05 am on August 23, 2011 by Ed Morrissey

Actually, the news from the AP’s survey of economists isn’t quite as pessimistic as JP Morgan’s long-term predictions earlier this month.  The global financier’s projections showed a US growth rate for 2011 of just 1.5% and 1.3% in 2012, with unemployment increasing to 9.5%.  AP’s survey predicts something closer to the mid-2s for the next two quarters and all of next year, with weak consumer spending being the main problem:

— The likelihood of a recession within the next 12 months is 26 percent. In June, the economists had put the likelihood at 15 percent.

— The economy will inch ahead at an annual rate of 2 percent in the July-September quarter and 2.2 percent from October through December. Though stronger than the growth for the first half of 2011, that isn’t enough to lower the unemployment rate much, if at all. And next year will barely be stronger.

— Weak consumer spending poses a “major” risk to the economy. In June, Americans cut their spending for the first time in nearly two years. And consumer spending fuels about 70 percent of the economy.

— The unemployment rate will end this year at 9 percent and 2012 at 8.5 percent. Those rates are slightly less than July’s 9.1 percent. But they’re more consistent with a recession than a recovery.

— The Fed’s efforts to keep interest rates at record lows may not succeed in promoting growth or easing unemployment. But its low-rate policies will likely boost stock prices.

The economists do foresee economic growth, job creation, consumer spending and home prices all rising over the next year. But the gains they expect are so slight that many Americans won’t notice.

The AP also says something curious about market psychology driving the pessimism:

What makes a solution so difficult is that the fear gripping investors isn’t just a symptom of economic distress; it’s also a cause of it. Sinking stock prices frighten consumers and businesses. They then spend and invest less. Investors respond to lower corporate sales by selling stocks, worsening the market declines.

That’s just nonsense.  Later in the same article, the AP reports that consumers in this country lost an aggregated $7 trillion in asset value in the economic collapse and are now saving rather than spending to restore their personal wealth.  Consumers want to hold onto income rather than spend it, and have shed almost a quarter-trillion in debt at the same time.  We are no longer turning our home equity into ATM machines for impulse spending, a good trend in the long run but one that means a lower level of consumer spending for the foreseeable future.

That’s a big part of the problem, and why the markets have grown fearful.  Stock prices had grown before the bubble collapse on the basis of that overheated level of consumer spending that relied on irrational home valuations to feed it.  Investors know that a generational lesson on saving money and protecting the family home has just been taught again, perhaps for the first time since the Great Depression, and that consumers are not likely to forget it.

The AP also discusses the Fed and monetary policy, coming to much the same conclusion I have written for months — the Fed is now mostly impotent.  The only impact another round of quantitative easing will have is on deflation, which so far doesn’t appear to be a threat.  They’ve lowered interest rates to zero and have pledged to keep them there for two years.  The problem isn’t monetary policy, which is why the Fed has really been irrelevant.  It’s unemployment, and that’s a result of an explosion of regulation and outright hostility towards industry in the US, especially on energy production.  We could create hundreds of thousands of jobs, perhaps millions of them, by unfettering energy exploration, extraction, and refining in the US.  That would boost rational consumer spending, stabilize the housing markets, and provide for real short- and long-term growth, and get investment capital off the sidelines and into the economy.  All anyone has to do is look at the economic boom in North Dakota to figure that out.

If economists are issuing pessimistic predictions through the end of 2012, it’s because they see the solution, too — and realize that Barack Obama will never implement it.

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Unexpected.

Washington Nearsider on August 23, 2011 at 10:06 AM

We could create hundreds of thousands of jobs, perhaps millions of them, by unfettering energy exploration, extraction, and refining in the US.

And if I could turn lead into gold I would be stinking rich!

OldEnglish on August 23, 2011 at 10:10 AM

The problem is Democrats. None of them gives a hoot about actually trying policies that are proven to stimulate PRIVATE sector job creation.

search4truth on August 23, 2011 at 10:12 AM

“It was a half-speed recovery; now, it’s a quarter-speed recovery.”

How’s a car in a ditch supposed to get out at 1/4 speed? Got a plan major speech for this one too, Mr. Obama?

Rovin on August 23, 2011 at 10:15 AM

Dems are learning some economic facts of life…

It’s a lot easier to talk doom and gloom about a good economy and have people believe you than to talk sunshine and lollipops about a bad economy and have people believe you.

People can believe things are good for them but bad for most other people.

It’s a lot harder to believe that things are bad for them but much better for most other people, especially when they know a lot of other people in the same straits as them.

teke184 on August 23, 2011 at 10:23 AM

If economists are issuing pessimistic predictions through the end of 2012, it’s because they see the solution, too — and realize that Barack Obama will never implement it.

If, and that’s a big if, requiring the GOP to basically punt the election on first down, Dear Liar gets reelected, then there won’t be a turn around until 2016. The Whine controls the federal bureaucracy and will seek to expand it. That level of uncertainty will keep consumers and businesses in bunker mode.

Problem being, Mittens is not much better. I want a candidate who will pledge to cut the federal bureaucracy. And by “cut” I don’t mean slow the rate of increase, but actually doing away with regulations, departments and agencies. Step one, deny the EPA any authority to regulate over “climate change”. Step two, eliminate the Department of Education. And sell off its office buildings.

rbj on August 23, 2011 at 10:24 AM

Deflation is evidence of correction, not some kind sourse of damage on and of itself. The only reason we would have to print money to avoid it is because of our at-will bank deposit way of capitalizing loans.

Count to 10 on August 23, 2011 at 10:25 AM

Does I gets a Peace Prize for this too?

Alden Pyle on August 23, 2011 at 10:26 AM

Consumers want to hold onto income rather than spend it

i’m one of them…

cmsinaz on August 23, 2011 at 10:29 AM

a US growth rate for 2011 of just 1.5% and 1.3% in 2012,

sounds absolutely pathetic but the lsm and dear leader will spin it big time…

inherited, yada, yada, yada

cmsinaz on August 23, 2011 at 10:30 AM

“But it would have been worse if it weren’t for me and my stimulus.”

Drained Brain on August 23, 2011 at 10:32 AM

AP survey of economists show increasing pessimism Changed their minds and/or were fired/quit their jobs after being contacted by the Obama DOJ

batterup on August 23, 2011 at 10:37 AM

“But it would have been worse if it weren’t for me and my stimulus.”

Drained Brain on August 23, 2011 at 10:32 AM

The only thing that Pelosi and Obama’s stimulus gave us was two more years of constipation:

blockage or obstruction: a state in which the usual flow of something is blocked or obstructed

Rovin on August 23, 2011 at 10:40 AM

The recession of 2011 began in July.

Vashta.Nerada on August 23, 2011 at 10:41 AM

Will the new CEO of S&P endorse whatever Obama’s “new plan” is and state that if it is enacted S&P will reinstate the US’ AAA credit rating? If so, Republican failure to adopt Obama’s plan will be argued to be the sole cause of the lower credit rating.

GaltBlvnAtty on August 23, 2011 at 10:44 AM

If economists are issuing pessimistic predictions through the end of 2012, it’s because they see the solution, too — and realize that Barack Obama will never implement it.

What did Paul Ryan (or was it Boehner?) say about negotiating with Obama? Barry couldn’t give one economic reason to refute the GOP position on deficit cutting, it was all about social justice. Obama is ideologically rigid and these economists understand that.
Obama can’t help himself, he’s got John Maynard Keynes rotten corpse at his table and insists he is alive.

cartooner on August 23, 2011 at 10:44 AM

I just saw an article last week that had the temerity to point out the economist projections for the last quarter were off by a staggering eight standard deviations!

Even outright guesses would be closer. So it is very clear their models are not designed to predict an outcome but to support the political needs of the powers that be.

Lonetown on August 23, 2011 at 10:44 AM

Obviously consumers will spend less when they have less. Unlike the current administration, most Americans understand basic economic concepts. We can’t just sit here and wait for money to pop into (extremely) thin air. Last time we did that…well, you know the story. The only way the market will improve is with less spending. But that will only happen in 2013.

RDE2010 on August 23, 2011 at 10:45 AM

If economists are issuing pessimistic predictions

Given the previous “predictions” those “economists” have made so far; I’d say those current pessimistic predictions ARE DOWN RIGHT ROSY.

Standby for further “UNEXPECTED” results.

GarandFan on August 23, 2011 at 10:47 AM

Gotta say it:

The Obama Recession, you bone it, you own it.

Chip on August 23, 2011 at 10:47 AM

Even outright guesses would be closer. So it is very clear their models are not designed to predict an outcome but to support the political needs of the powers that be.

Lonetown on August 23, 2011 at 10:44 AM

This sounds eerily like an AGW report.

Rovin on August 23, 2011 at 10:50 AM

It only means one thing….
The Nobel prize for Economics is as good as his…

right2bright on August 23, 2011 at 10:59 AM

Investors know that a generational lesson on saving money and protecting the family home has just been taught again, perhaps for the first time since the Great Depression

AND maybe can now start to understand why the Savings and Loan Industry was established in the first place,
and how large a crime against the country it was to destroy it.

golfmann on August 23, 2011 at 11:02 AM

Dems in Congress cannot institute policies that will reduce unemployment because to do so would annoy the base of elites and greens who prop them up and likely cause them to lose their jobs. So it’s just more of the same political finger-pointing garbage we’re all so used to by now.

jdp629 on August 23, 2011 at 11:04 AM

“Actually, the news from the AP’s survey of economists isn’t quite as pessimistic as JP Morgan’s long-term predictions earlier this month.”

..yes, but Morgan (Freeman) told the president to “get pissed off.” Guess that’s better than getting pissed ON.

Or something.

The War Planner on August 23, 2011 at 11:16 AM

..maybe the POTUS should just kick back and kill a bottle of Morgan’s rum.

Or something.

The War Planner on August 23, 2011 at 11:17 AM

— The likelihood of a recession within the next 12 months is 26 percent. In June, the economists had put the likelihood at 15 percent.

WAHINGTON (AP) August 23, 2012 – The U.S. economy has unexpectedly fallen into a double dip recession….

RadClown on August 23, 2011 at 11:34 AM

Pining for the fjords.

A Balrog of Morgoth on August 23, 2011 at 11:58 AM

So, if the economists are predicting such a rosy outlook, how bad will it really be? Seems to me every time some economic numbers have come out, the economists were off – many times quite badly.

I expect no real improvement in the economy, jobs, etc until The One is gone, be it 2013 or after. Damn, he makes Jimmy Carter look good.

jackal40 on August 23, 2011 at 12:49 PM

http://data.bls.gov/timeseries/LNS12300000

Ok, we’re at the lowest percentage of Americans employed in over 25 years; and they’re predicting job growth will slow down from where we’re at now (which has gotten us to a 25+ year low point)?

Well that’s bound to be impressive to watch… but preferably from further away.

gekkobear on August 23, 2011 at 12:51 PM

Ed wrote:

The only impact another round of quantitative easing will have is on deflation, which so far doesn’t appear to be a threat.

You might want to check on that threat level again – that’s exactly why the Fed will act sooner rather than later.

ironman on August 23, 2011 at 1:20 PM

Re QE3: BofA Warns Upcoming “Desperate Measures” By Authorities Will Result In Another 2008 Market Collapse

“…according to various estimates from both Goldman and the second Tier banks, i.e., all of them, the market has priced in roughly $500 billion in QE3 already.”

I believe QE3 is also inevitable simply to help little Bammie keep his ratings out of the basement.

slickwillie2001 on August 23, 2011 at 3:34 PM

And if I could turn lead into gold I would be stinking rich!

OldEnglish on August 23, 2011 at 10:10 AM

Absolutely right. And so is Ed.

unclesmrgol on August 23, 2011 at 11:57 PM

We are getting drilled

The attractive commercials of the People of the Oil and Gas Industry don’t even claim that oil jobs alone can lift us out of the mess we are in. Better get busy with the lead to gold process.

Just be ready to wait four years for the USPTO to act on your application.

IlikedAUH2O on August 28, 2011 at 9:29 PM