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January 30th, 2009

GDP Bests Predictions, Recession Deepens

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While most economists forecast a 5.4% decline in the nation’s gross domestic product (GDP), a measurement of the country’s total output of goods and services, the growth indicator contracted less than market observers feared.

The 3.8% decline, despite beating predictions, is still the worst drop in 27 years — the most since the first quarter of 1982.

We’ll avoid bogging you down with the plethora of negative stats that accompany the report. Instead, what are the experts predicting in terms of economic growth for the future?

Economic research firm Moody’s (DismalScientist) agrees with the Congressional Budget Office’s estimate of future unemployment:

Job losses will persist through most of this year, and the unemployment rate will peak at above 9% in the middle of 2010.

On the other hand, Moody’s seems to be rather more confident than many of the president’s critics regarding the positive economic impact of federal spending:

Aggressive action by the federal government and the Federal Reserve will eventually lead to renewed growth toward the end of 2009. A massive federal stimulus bill, including aid to households and state governments, spending on infrastructure and tax cuts, will put people back to work, restore confidence, and boost spending.

The Fed is also taking unprecedented steps to boost growth. It has provided massive amounts of liquidity to the financial system and cut short-term interest rates as much as it can. Now it is engaged in quantitative easing, basically printing money to purchase various types of securities in an effort to bring down longer-term rates and spur growth. These steps will eventually lead to recovery, but in the meantime the economy will experience a very deep recession.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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