The U.S. economy will emerge from recession by growing more than 2 percent in the current and fourth quarters on a dramatic reversal in inventories, but growth next year will be tepid, a UCLA Anderson Forecast said on Wednesday.
After the swing in inventories, growth will remain modest in 2010, with the national unemployment rate averaging 10 percent through next year, the report said. It noted that consumers and businesses alike will be repairing their balance sheets for some time -- and credit will be tight.
Federal Reserve Chairman Ben Bernanke said on Tuesday the worst U.S. recession since the Great Depression was probably over but that recovery and job creation would be slow.
Although the worst recession in seven decades likely ended in the current quarter, its negative effects will linger well into the next decade, the UCLA Anderson Forecast said.
The researchers said in the report that their cautious view of growth rests on the belief that a two-decade binge of consumer spending fueled by easy credit and rising stock and home prices has ended and will not return.
Consumer spending and investment will be weighed down by the process of deleveraging the balance sheets of consumers, businesses and financial institutions, the report added. Not only will financial institutions be less willing to lend, but consumers and businesses will be less willing to borrow.
Restrained spending, investment, borrowing and lending will hold down near-term growth rates, according to UCLA Anderson Forecast researchers.
They projected growth of 2.1 percent this quarter, 2.3 percent in the fourth quarter and quarterly growth averaging 2 percent next year, with noticeable improvement at the end of the year of about 3 percent.
Growth may be slowed later in the decade if consumer spending is further restrained by likely tax increases on the middle class after 2013 to help pay for today's massive stimulus spending and to reduce the federal deficit.
The structural problem facing the economy is that you have wealth-impaired consumers that need to repair balance sheets and many need to repair balance sheets because they are facing retirement or education costs for children with less than they thought they had, said David Shulman, a senior economist at the UCLA Anderson Forecast group.
Somewhere mid-decade we'll get back on a 3 percent long-term growth track, he said. (Editing by Dan Grebler)