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Recovery For U.s. Slowest Since World War Ii Even When Optimists Are Right

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The U.S. recovery may be the slowest since World War II to regain all the ground lost during the recession, even if economists’ more optimistic forecasts for expansion turn out to be right.

The slump this time was so deep, said JPMorgan Chase & Co. chief economist Bruce Kasman, that the 3.5 percent average quarterly growth rate he sees in the next year won’t be enough to bring gross domestic product back to its $13.42 trillion pre- crisis peak. That’s in contrast with the last 10 recoveries, when GDP returned to its previous levels within 12 months.

The result: A year after the Lehman Brothers Holdings Inc. bankruptcy helped drive GDP down to an annualized $12.89 trillion in the second quarter, there’s still “plenty of malaise,†Kasman said. Unemployment may remain close to the current 26-year high of 9.7 percent through 2010, upsetting voters ahead of mid-term Congressional elections and forcing officials to keep interest rates near zero and the budget deficit around this year’s record $1.6 trillion.

“This will be the most disappointing recovery,†said Kasman, whose forecast compares with the median estimate of 2.5 percent growth in a Bloomberg News survey of economists.

The U.S. might not recover the 6.9 million jobs and the $13.9 trillion in wealth lost during the recession until about the middle of the decade, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. The unemployment rate may never get back down to the 4.4 percent low of 2007, he said.

Cyclical Revival

Stock prices may take three or four years to reach their previous highs as the cyclical revival of the economy gradually boosts corporate profits, said Allen Sinai, chief economist at consulting group Decision Economics in New York.

“It will be a bull market, but not a roaring bull market,†Sinai said. He sees the Standard & Poor’s 500 stock index rising to 1,100 by the end of 2009 from its close of 1,042.73 on Sept. 11. The index hit a record 1,565.15 on Oct, 9, 2007, and then fell to a 12-year low of 676.53 on March 9, 2009.

Companies, particularly retailers such as Macy’s Inc., may have to adjust as consumers buy less. Household spending as a share of GDP might fall to its long-run historical average of 65 percent from 70 percent in the past decade as people opt to save more, according to economists Peter Berezin and Alex Kelston, of Goldman Sachs Group Inc.

More hopelessly optimistic drivel at the link.

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“This will be the most disappointing recovery,†said Kasman

If by disappointing he means that it's been talked up to taste like prime, well-matured Scottish sirloin, but actually smells and tastes remarkably like a pile of steaming sh1t, then I agree.

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