Worst Spending Slump Since 1942 Extends âScaryâ U.S. Recession http://www.bloomberg.com/apps/news?pid=20601110&sid=ado8P..GCtC4 By Shobhana Chandra and Andy Burt Dec. 10 (Bloomberg) -- The biggest slump in U.S. consumer spending since 1942 will extend the recession and push the jobless rate to the highest level in a quarter century, according to economists surveyed by Bloomberg News. Household spending will drop 1 percent in 2009, the biggest decline since after the attack on Pearl Harbor, according to the median estimate of 51 economists surveyed Dec. 4 through Dec. 9. By the middle of next year, the economy will have shrunk for a record four consecutive quarters, the survey showed. âThat sounds scary enough to me,â said Jeffrey Frankel, an economics professor at Harvard University and a member of the group that determined the start of the recession. âConsumers have carried the weight of expanding demand for a long time at the expense of a serious deterioration of their balance sheets.â A drop in spending has brought the auto industry to the brink of collapse, and mounting unemployment, a lack of credit, and falling property and stock values will prompt Americans to turn even more frugal. President-elect Barack Obama has pledged to pursue the biggest public-works plan since the 1950s to stem the already year-old economic slump. âItâs a serious recession, and thereâs a good chance it will break the 16-month record since the Depression,â said James OâSullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. âWeâre at the stage where the weakness is feeding on itself. The next few months look pretty rough.â Longest Slumps The National Bureau of Economic Research last week announced the U.S. contraction began in December 2007. The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933. Economists cut fourth-quarter forecasts for gross domestic product by more than a percentage point from last month, predicting the economy will shrink at a 4.3 percent annual rate, the biggest plunge since 1982. The worldâs largest economy will contract at a 2.4 percent pace in the first three months of 2009 and at a 0.5 percent rate the following quarter, the survey showed. Combined with the 0.5 percent drop in this yearâs third quarter, it would be the longest slide since quarterly records began in 1947. Consumer purchases, the biggest part of the economy, may drop at a 4 percent rate this quarter, the survey showed. Following the 3.7 percent slump from July through September, it would be the first time on record that spending declined in excess of 3 percent in consecutive quarters. The spending slump will continue into the first half of 2009, according to economists. More Joblessness The drop in sales will prompt employers to keep cutting staff, sending the employment rate to 8.2 percent by the end of next year, a 25-year high, the survey showed. âItâs the perfect storm for the consumer,â said Peter Kretzmer, a senior economist at Bank of America Corp. in New York. âWith rising unemployment, weâre talking about a very serious recession. If credit conditions donât ease, itâs difficult to see the recession endingâ soon. Investors concerned about the worst financial crisis in at least 70 years have rushed to the safety of U.S. government debt, causing three-month Treasury bills to trade yesterday at negative rates for the first time. Economists project the Federal Reserve will cut the benchmark rate target to 0.5 percent when they meet in Washington next week and hold it there for all of 2009, the survey showed. âThe Fed is moving aggressively and will continue to do more,â UBSâ OâSullivan said. Stimulus measures from the central bank and the government are âabsolutely needed,â he said. Rescue Stalls Automakers are among those seeking help. Congressional approval of a $15 billion rescue stalled yesterday and General Motors Corp. and Chrysler LLC say they need the aid to survive. Retailers also are concerned about the November-December holiday season, which brings in one-third or more of annual revenue and is predicted to be the worst in years. âThe big problem is that thereâs no bottom in sight for consumers and for businesses,â said John Lonski, chief economist at Moodyâs Capital Markets Group in New York. âThe negative sentiment makes it difficult to stabilize the situation. Itâs very worrisome.â Businesses are pulling back as Americans retrench. Dow Chemical Co., the largest U.S. chemical maker, this week said it will cut 5,000 jobs, permanently shut 20 facilities, temporarily idle 180 plants and reduce the companyâs contractor workforce by about 6,000. âRecessionary Modeâ âThe entire industrial supply chain all the way to whatever the consumer buys outside of food and health is in a recessionary mode,â Chief Executive Officer Andrew Liveris said on a conference call. âAcross the board, everywhere.â The downturn will help contain inflation, the survey showed. Consumer prices will rise 1.6 percent this year and next, the smallest back-to-back gain since 1964-65, according to the median. Itâs âa recession with adjectives,â Martin Feldstein, a member of the NBER group that announced the downturn, said in a Bloomberg Television interview yesterday. âA deep recession, a long recession, a damaging recession.â