First on CNN: Next spring the economy will sink into a 1990-style recession, Fitch says — a “depression of the spirit,” as the rating company says, in the wake of the country’s weakest wage growth and plunging unemployment rate since the end of World War II, though the number of unemployed is down from a high in March 2009. And yet, unemployment “will not be eliminated by the economic collapse. In fact, it will simply move down from a high in 2010 to a new level,” Fitch says. “But given the state of the economy, it will take a period of deep recession to reduce the unemployment rate to a more sustainable 4.5% before the jobless recovery begins.” So, the recovery is going to have to be sustained for four years. And Fitch’s estimate of 3-1/2 percent unemployment in 2020 is the consensus of economists surveyed by CNNMoney and the Wall Street Journal.
But the big question is, what would trigger that recovery. “There is no consensus,” Fitch says, adding, “We don’t expect to see a quick or steep recovery.”
Fitch points out that a recession has to last at least six months to qualify as a depression, and unemployment has to stay below 4.5 percent for two quarters in a row.
What we’re looking at here, Fitch says, is a prolonged, deep recession with the jobless recovery lasting at least until next year. In the meantime, Fitch also warns that the housing market hit by the housing bubble will not recover quickly, meaning that a fall in consumer spending is likely once again. (And, of course, the number of unemployed can’t go up much higher.)
There is an equally large amount of negative sentiment on Wall Street:
“The market is still at risk that a new recession will break out in the U.S.,” says David Kostin, chief global economist at RBC Capital Markets.
Kostin goes on to say that Fitch’s prognosis is based on the notion that labor and manufacturing will be hard-hit by the slowdown; that there might not be enough consumer spending