2009 will be hard, recovery in 2010 - report

The economy will continue to sputter for the rest of this year, but see some relief next year, according to the UCLA Anderson report.

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By Catherine Clifford, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- The U.S. economy has a good chance of starting to recover in 2010, but the rest of this year is going to be tough, according to a report released Wednesday.

The UCLA Anderson School of Management's quarterly economic forecast calls for real gross domestic product to decline 6.8% in the first quarter of 2009, 4.5% in the second quarter, and another 1.7% in the third quarter.

But in 2010, the report predicts an average quarterly growth of 2.7% and an average of 4.1% in 2011.

David Shulman, a senior economist with the project, wrote that he expects the current recession will span 19 to 24 months, surpassing the 1981-1982 recession, which dragged on for 16 months.

Recovery in the labor market is expected to be slower than in the broader economy, with 7.5 million jobs lost through the entire recession as the unemployment rate spikes to 10.5% in the middle of 2010. By the end of 2011, employment is forecast to total 4 million jobs below 2007's employment peak, and the unemployment rate will still be above 9%.

Recovery by 2010: "We still forecast a tepid recovery in 2010 as the contractionary forces become spent (i.e. housing can't get much lower) and the near-term positive impacts of monetary and fiscal policy take hold," wrote Shulman in the report.

A national economic recovery was more likely given recent announcements from the Federal Reserve and the Treasury, Shulman said in a phone interview. "I feel a lot better about seeing a recovery in 2010 today than I did a week ago," he said.

The Federal Reserve said last Wednesday it would inject another $1 trillion into the economy by buying government bonds and mortgage-backed securities. On Monday, Treasury Secretary Timothy Geithner unveiled his plan to remove toxic assets from the balance sheets of banks.

While the aggressive spending policies of the government may spur growth, they could also devalue the dollar in the long run. "If inflation is a problem, it will be late in or after our 2011 forecast horizon," wrote Shulman.

Focus on California: According to the UCLA Anderson forecast for California, the state's unemployment rate will peak at 11.9% in the second quarter of 2009 and will average 11.7% for the year.

California has been hit hard by the meltdown in the housing market, with housing prices sinking and foreclosure rates on the rise.

"Certainly housing markets in California have yet to bottom out," wrote Jerry Nickelsburg, a senior economist with the project.

Similar to the nation overall, however, California is forecast to see recovery by the end of 2010, even though 2009 will be very weak.

"The current forecast reflects a deeper and longer recession than we previously thought," wrote Nickelsburg. "The economy will begin to pick up in 2010 and by the end of 2010 will be growing at more normal levels." To top of page

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