WASHINGTON — The nation’s largest banks expect the economy to recover from its deep slump by late summer but remain weak until next year.
WASHINGTON — The nation’s largest banks expect the economy to recover from its deep slump by late summer but remain weak until next year. "The economy will return to growth but not to health," Bruce Kasman, chief economist for JPMorgan Chase & Co. and chairman of the American Bankers Association’s Economic Advisory Committee, said Tuesday. The committee, which includes economists from Wells Fargo & Co., PNC Financial Services Group, Morgan Stanley and others, expects gross domestic product to increase at an annual rate of 0.5 percent in the July-September quarter, after falling a projected 1.8 percent in the April-June period. Federal Reserve Chairman Ben Bernanke also says the economy could recover by the end of this year. But jobs will remain scarce and the unemployment rate will keep rising even after the recovery begins, the committee said, peaking at 10 percent in the first three months of 2010. The rate will remain elevated through 2010 and will finish the year at 9.5 percent, the committee forecast. That would be above the current jobless rate of 9.4 percent. Still, consumer spending has stabilized after dropping sharply late last year, Kasman said, and businesses have cut inventories, which should lead to reduced layoffs. In addition, credit is more widely available than it was at the height of the crisis last winter due to the government’s efforts to rescue the banks, he said. But a report from the Treasury Department Monday showed that lending by the 21 largest banks receiving federal bailout money dropped in April for the fifth time in six months. Total lending by those banks fell to $4.34 trillion, down 0.8 percent from March. The Obama administration’s $787 billion stimulus package also is contributing to the recovery, Kasman said. The committee also expects the housing market to bottom this year and contribute to economic growth for the first time in several years. Home prices will be "modestly higher" next year, the committee said. Signs of recovery in the housing market appeared Tuesday as construction of new homes and apartments jumped 17.2 percent to an annual pace of 532,000 units. That was above analysts’ expectations of 500,000 units. Still, the huge increase in the federal government’s budget deficit, which is expected to reach nearly $1.85 trillion this year, could lead to higher interest rates after 2010. "There are clearly challenges and longer term problems that remain even as the economy recovers," Kasman said. Inflation, meanwhile, will remain at bay, as consumer prices drop to about 1 percent by the end of this year, he said. That’s near the 0.9 percent annual drop in the consumer price index that analysts expect when the Labor Department releases the May report Wednesday. The decline is mostly due to lower food and gasoline prices compared with last summer. The absence of inflation will enable the Federal Reserve to keep its key short-term interest rate at near zero until the second half of next year, the committee projects. "Our view is the Fed is not close to thinking" about raising the rate, Kasman said. Still, he noted that there was more disagreement among the committee regarding inflation and the Fed than on other issues. ______ Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
About Post Author
