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Not a Happy New Year Ahead

If you think the economy is in trouble now, just wait. Bloomberg looks ahead a few months and predicts things will be getting even worse. Its survey of economists predicts a slump going well into 2009, as consumer spending finally slows down after its longest expansion on record.

What’s also interesting about the Bloomberg report is that economists see only a temporary boost to the economy from the stimulus checks, the last of which were sent out in July. When the stimulus package was approved back in February, the idea was to either prevent a recession or to limit any possible downturn. But the rebates don’t seem to be doing much to prop up the economy, according to the survey. It notes the impact of the rebates will be all but gone by the fourth quarter of this year. Here’s more on the gloomy outlook, from Bloomberg:

Household spending, which has grown every quarter since 1992, is projected to stall in the last three months of the year as the impact of tax rebates fades, wages fail to keep up with inflation and property values fall. The jobless rate, now at 5.7 percent, will reach a five-year high of 6 percent in early 2009.“The consumer is very much squeezed,” said John Lonski, chief economist at Moody’s Investors Service Inc. in New York. “The downside risks swamp whatever the economy’s upside potential would be.”

Either the economy was in far worse shape than anyone realized when the stimulus package was approved, or the benefits of the checks were overestimated. It’s probably a combination of both, and a warning for the next time Washington decides to fix the economy’s structural problems by sending out free money from the government.

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