10-10-2008, 11:19 PM
<b>
FORECASTER OF THE MONTH
Top forecasters see severe recession</b>
Harris, O'Sullivan win fifth championship in MarketWatch contest
By Rex Nutting, MarketWatch
Last update: 12:01 a.m. EDT Oct. 10, 2008
Comments: 72
WASHINGTON (MarketWatch) -- Award-winning economist Jim O'Sullivan of UBS takes no solace in the accuracy of his long-standing forecast that the housing bubble would severely impact the U.S. economy.
"It is what it is, whether we forecast it or not," O'Sullivan said. "It's a painful time on Wall Street."
O'Sullivan and his boss, Maury Harris, won their fifth Forecaster of the Month award from MarketWatch in September, beating 44 of their peers in the monthly contest that honors those who've done the best job of forecasting the tricky monthly numbers that most move financial markets.<!--QuoteBegin-->QUOTE<!--QuoteEBegin--> Maury Harris,
Jim O'Sullivan
UBS
 Forecast Actual*
Nonfarm payrolls -80,000 -84,000
ISM 49.5% 49.9%
Trade gap $60 bln $62.2 bln
Retail sales 0.4% -0.3%
CPI -0.1% -0.1%
Industrial production -0.8% -1.1%
Housing starts 925,000 895,000
New homes 505,000 460,000
Durable orders -3.0% -4.5%
Consumer confidence 59 59.8
* Subject to revision<!--QuoteEnd--><!--QuoteEEnd-->
Harris and O'Sullivan think the U.S. economy will be weaker for the next five or six months before a gradual recovery in the second half of the year behind further significant actions by the Federal Reserve to unfreeze the credit markets and stimulate growth again.
They expect the Fed to lower its target interest rate to 1% (from 1.5% currently) and provide even more support to financial firms and credit markets through special lending and liquidity operations.
The Fed "will do what has to be done" to maintain a functioning financial system, O'Sullivan said. There's "an awful lot more they can do," he said, adding "They do get it."
The recession will be "much more severe than the last two," although he suggests that any comparison with the Great Depression is ludicrous. The unemployment rate peaked at about 25% in the Thirties; he sees the official unemployment rate rising to about 7.3% late next year from 6.1% now.
Measured by the expected 0.8% decline in gross domestic product, this recession is likely to be milder than the average 2% drop in post-World War II recessions. Measured by the increase in the unemployment rate, it's likely to be a little worse than average. If it began in December and ends next March, it would tie the 1973 and the 1981 as the longest downturns since the Depression.
But those metrics may hide the depth of this downturn. In the 1950s through 1980s, recessions were marked by sharp declines in output and employment, followed by a quick snap back as inventories corrected.
The last two recessions, however, have been followed by "jobless recoveries." It took years for employment to bounce back to pre-recession levels. It's likely to be like that this time around too, O'Sullivan said.
"It's hard to see where the surge comes from," O'Sullivan said. "The recovery will be defined as the period when unemployment stops rising."
Harris and O'Sullivan won the September contest with top forecasts on the consumer price index and industrial production. They also had among the most accurate forecasts for payrolls, consumer confidence, durable goods, housing starts and the trade balance.
With their fifth victory, the UBS team joins economists for Citigroup and RBS Greenwich Capital as the only five-time winners in the contest that was inaugurated in the autumn of 2003.
The consensus forecasts published by MarketWatch each week come from the median forecasts of the 10 economists who've done best in our contest over the past year, plus the forecasts of MarketWatch economist Irwin Kellner, and the forecasts of the most recent winner of the monthly contest. See Economic Calendar.
Over the past 12 months, the top economists are, in order: Stephen Stanley of RBS Greenwich Capital; Dean Maki's team at Barclays Capital; Stephen Gallagher of Societe Generale; Michael Feroli at J.P. Morgan; Jan Hatzius' team at Goldman Sachs; Harris and O'Sullivan of UBS; Nigel Gault and Brian Bethune of Global Insight; David Wyss of Standard & Poor's; Avery Shenfeld of CIBC World Markets; and David Greenlaw and Ted Wieseman of Morgan Stanley. End of Story
Rex Nutting is Washington bureau chief of MarketWatch.
FORECASTER OF THE MONTH
Top forecasters see severe recession</b>
Harris, O'Sullivan win fifth championship in MarketWatch contest
By Rex Nutting, MarketWatch
Last update: 12:01 a.m. EDT Oct. 10, 2008
Comments: 72
WASHINGTON (MarketWatch) -- Award-winning economist Jim O'Sullivan of UBS takes no solace in the accuracy of his long-standing forecast that the housing bubble would severely impact the U.S. economy.
"It is what it is, whether we forecast it or not," O'Sullivan said. "It's a painful time on Wall Street."
O'Sullivan and his boss, Maury Harris, won their fifth Forecaster of the Month award from MarketWatch in September, beating 44 of their peers in the monthly contest that honors those who've done the best job of forecasting the tricky monthly numbers that most move financial markets.<!--QuoteBegin-->QUOTE<!--QuoteEBegin--> Maury Harris,
Jim O'Sullivan
UBS
 Forecast Actual*
Nonfarm payrolls -80,000 -84,000
ISM 49.5% 49.9%
Trade gap $60 bln $62.2 bln
Retail sales 0.4% -0.3%
CPI -0.1% -0.1%
Industrial production -0.8% -1.1%
Housing starts 925,000 895,000
New homes 505,000 460,000
Durable orders -3.0% -4.5%
Consumer confidence 59 59.8
* Subject to revision<!--QuoteEnd--><!--QuoteEEnd-->
Harris and O'Sullivan think the U.S. economy will be weaker for the next five or six months before a gradual recovery in the second half of the year behind further significant actions by the Federal Reserve to unfreeze the credit markets and stimulate growth again.
They expect the Fed to lower its target interest rate to 1% (from 1.5% currently) and provide even more support to financial firms and credit markets through special lending and liquidity operations.
The Fed "will do what has to be done" to maintain a functioning financial system, O'Sullivan said. There's "an awful lot more they can do," he said, adding "They do get it."
The recession will be "much more severe than the last two," although he suggests that any comparison with the Great Depression is ludicrous. The unemployment rate peaked at about 25% in the Thirties; he sees the official unemployment rate rising to about 7.3% late next year from 6.1% now.
Measured by the expected 0.8% decline in gross domestic product, this recession is likely to be milder than the average 2% drop in post-World War II recessions. Measured by the increase in the unemployment rate, it's likely to be a little worse than average. If it began in December and ends next March, it would tie the 1973 and the 1981 as the longest downturns since the Depression.
But those metrics may hide the depth of this downturn. In the 1950s through 1980s, recessions were marked by sharp declines in output and employment, followed by a quick snap back as inventories corrected.
The last two recessions, however, have been followed by "jobless recoveries." It took years for employment to bounce back to pre-recession levels. It's likely to be like that this time around too, O'Sullivan said.
"It's hard to see where the surge comes from," O'Sullivan said. "The recovery will be defined as the period when unemployment stops rising."
Harris and O'Sullivan won the September contest with top forecasts on the consumer price index and industrial production. They also had among the most accurate forecasts for payrolls, consumer confidence, durable goods, housing starts and the trade balance.
With their fifth victory, the UBS team joins economists for Citigroup and RBS Greenwich Capital as the only five-time winners in the contest that was inaugurated in the autumn of 2003.
The consensus forecasts published by MarketWatch each week come from the median forecasts of the 10 economists who've done best in our contest over the past year, plus the forecasts of MarketWatch economist Irwin Kellner, and the forecasts of the most recent winner of the monthly contest. See Economic Calendar.
Over the past 12 months, the top economists are, in order: Stephen Stanley of RBS Greenwich Capital; Dean Maki's team at Barclays Capital; Stephen Gallagher of Societe Generale; Michael Feroli at J.P. Morgan; Jan Hatzius' team at Goldman Sachs; Harris and O'Sullivan of UBS; Nigel Gault and Brian Bethune of Global Insight; David Wyss of Standard & Poor's; Avery Shenfeld of CIBC World Markets; and David Greenlaw and Ted Wieseman of Morgan Stanley. End of Story
Rex Nutting is Washington bureau chief of MarketWatch.