Forecasters: U.S. in 14 month recession



NEW YORK (Reuters) - The U.S. economy fell into a recession last spring and will contract sharply this quarter as more than 200,000 workers per month are added to the rolls of the unemployed, a survey said on Monday.

The Philadelphia Federal Reserve's latest Survey of Professional Forecasters removed some of the glow from an earlier report showing industrial output rebounded in October after hurricane disruptions produced a stunning fall in September.

Early data from the factory sector also supported the grim view of the forecasters, showing manufacturing in New York state tumbled in November to yet another record low.

Japan on Monday joined the euro zone in recession. Although the U.S. economy contracted in third quarter, that followed two consecutive quarters of growth, albeit helped by government stimulus payments. The arbiter of U.S. business cycles has not yet declared the economy in recession.

The latest data and surveys provided new evidence that turmoil in credit markets was tightening its grip over the economy, which is unlikely to see any relief soon from the worst financial crisis since the Great Depression.

"The early signs suggest that the November data cycle is likely to be extremely weak," analysts at RDQ economics said in a research note.

On Wall Street, stocks were weaker in volatile trade, though off early lows, while government bonds were mixed and the dollar was a shade higher against the yen.

The Philadelphia Fed's survey predicted gross domestic product would shrink by 2.9 percent in the fourth quarter, a sharp downgrade from the previous prediction of 0.7 percent growth.

It said the U.S. economy entered a recession in April and that it will last 14 months, which would make it one of the longest recessions since the Great Depression of the 1930s.

Only the 16-month recessions in the mid-1970s and early 1980s were longer. Even though the economy was technically growing in April this year it would not be unprecedented for the National Bureau of Economic Research to declare a recession was occurring then.

The NBER measures recessions by "a significant decline in economic activity spread across the economy," rather than the traditional definition of two consecutive quarters of falling

GDP.

The recession of March-November 2001 did not include two consecutive quarters of GDP contraction. This year, the economy has lost 1.2 million jobs since an uninterrupted labor market slump started in January, while manufacturing has contracted for most of the year.

The survey predicted the economy would shed an average of 222,400 jobs per month this quarter. It said first-quarter GDP would decline by 1.1 pct and the unemployment rate would hit 7.0 percent during the first three months of next year.

A separate report by the Federal Reserve showed U.S. industrial production rose a stronger-than-expected 1.3 percent in October after a downwardly revised September drop of 3.7 percent -- the biggest fall in more than 62 years.

The September slide in industrial output was the steepest since a 5.0 percent decline in February 1946.

The Fed said the revision to September output resulted, in part, from a larger estimate of the impacts that Hurricanes Gustav and Ike had on the chemical industry. This also set a lower base for October.

"The October improvement is not anything to cheer about," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI, a private economic research organization.

"EMPIRE" STRICKEN

In a separate report, the New York Fed said its "Empire State" general business conditions index fell to minus 25.43 in November from minus 24.62 in October. That was the lowest reading on manufacturing in New York state since the inception of the index in July 2001.

The report "paints a dim picture," said David Ader, head of government bond strategy at RBS Greenwich Capital, in Greenwich, Connecticut. "Still, this is not exactly surprising but more confirmation," he added.

Economists polled by Reuters had expected an even weaker reading of minus 26.10.

The report, based on a survey of manufacturers in New York state, was generally bleak. The indexes for new orders and shipments slid to record lows, while the measures for unfilled orders, employment and inventories all slipped to their lowest levels since late 2001.

As with many recent reports, the one silver lining was that inflation measures fell, which should give the Federal Reserve leeway to continue holding interest rates low as it fights the effects of the worst financial crisis in 80 years.

The prices paid index fell for the fourth straight month and the prices received index tumbled to its lowest level in more than three years, the report said.

Copyright 2008 Reuters. click for restrictions

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