2009 Outlook continues to be ugly

From Mish: 2009: Already looking bleak
Destruction of household wealth, bleak employment situation and wage conditions
Housing plunges, declining corporate profits

From CNBC: Outlook '09: Likely Bad, but Just How Ugly Will It Get?
Forget about the good. It’s about the bad and the ugly when it comes to the US economy next year. The big questions are how ugly things will get and how they’ll compare to recessions of the past.

Many economists now expect the economy to contract as much as 5 percent on an annualized basis in the first quarter, followed by a small contraction in the second quarter. Bank of America’s chief economist Mickey Levy is forecasting a decline in every quarter of 2009 and doesn’t see a return to trend, or normal, growth until early to mid 2010.

The recession we are experiencing is going to be at least as bad as 1973-1975 and 1980-1982 periods if not worse. Also, this recession is going to be long and deep, and we won't see recoveries soon.

“With another eight months of declines in home prices, you start to get some modest pickup in sales, followed by a stabilization in construction, not a bounceback,” warns Levy.

Another key yardstick of any recession is unemployment. The jobless rate is widely expected to rise steadily from its current rate of 6.7 percent to 9-percent (or 10%) in 2009 or early 2010. If so, that would be double the expansionary low of 4.4% set in December 2006, something that didn't happen in either of the past two recessions.

Rich Pedroncelli / AP

David Rosenberg, chief North American economist at Merrill Lynch, sees another 15 percent decline in house prices. “We don't have a lot of pent up demand,” he told CNBC. “The supply needs to go down.”

The MBA expects rates on 30-year fixed mortgages to plateau at about 5 ¼ percent in the first half of the year, but tighter credit borrowing standards will continue to keep would-be buyers out of the market. Meanwhile, prices will continue to decline, but more moderately.

Obama's stimulus package: "Six-hundred billion (dollars) is the minimum,” says Behravesh “If they can make it bigger -- $700-800 billion, even a $1 trillion. The latter might make sure we come out of it this summer”.

Thus far, a big part of the funds in what’s likely to be a two-year package appears to be earmarked for infrastructure spending, with the usual social safety net measures and some kind of tax cut for low-and middle-income earners.

“There's a limit to how much fiscal stimulus you can do,” says Resler, who, like other critics worries about waste, fraud and pork barrel politics in an infrastructure program.

One traditional worry missing from the list of many economists is inflation. At best, all the money and fiscal stimulus will succeed in stimulating demand, the thinking goes, without accompanying wage and price pressures.

"The increase (in money supply) is necessary but a not sufficient condition for inflation," says Levy. "The turbo-charged Fed easing prevents deflation."

That deflation worry is back on the list.

Allen Sinai of Decision Economics said the economy is in for another three to six months of dismal performance; real recovery will wait until 2010. The stimulus will work; lots of government spending will lift GDP, but the real question will be whether the health of the private section can be restored.