Economists Get Dismal

More bad news to start the week: the U.S. economy will shrink further over the next two quarters, with the unemployment rate expected to peak at 7.5 percent, Reuters reports, citing a new poll. The survey, taken by the National Association of Business Economists, says real GDP will fall by 2.6 percent in the current quarter and by 1.3 percent in the first quarter of next year. The poll paints a gloomier picture than the official government estimates that GDP will shrink at just 0.3 percent, Reuters points out. And the economists say with near unanimity that the U.S. has been in a recession for a while, perhaps since the end of 2007. Other economists polled say it began in early 2008.

One place economists agree recession has already set in is Japan, the world's second-largest economy. The Japanese government this morning admitted GDP contracted at an annual rate of 0.4 percent from July to September, putting Japan officially in recession for the first time since 2001, the Washington Post writes from Tokyo. "Japan's economy minister warned that the situation could worsen: Collapsing sales of Japanese goods in the United States and Europe amid the global downturn threaten to make the country's export-dependent economy even weaker in coming months," the newspaper adds. The outlook appears equally bleak in Britain, another G7 power. The U.K. recession will almost certainly be worse than first expected, driving nearly 3 million people out of their jobs as the economy contracts by 0.8 percent in 2008 and by 1.7 percent in 2009, the Wall Street Journal writes, citing the latest survey by the Confederation of British Industry. As a result, the CBI expects the Bank of England in the next year to cut benchmark interest rates by a further 1.5 percent.

With so much talk of global recession in the air, what, if anything, did this weekend's historic G20 meeting accomplish? Depending on which paper you pick up, the landmark summit will either succeed in opening the door to a globally coordinated stimulus plan or will simply pour gasoline on the fire. The Financial Times is in the optimistic camp, saying G20 world leaders presented a united front in pledging "to shore up global growth, avoid protectionism and move quickly on regulatory reform." The paper added, "People at the talks said the statement would give fresh momentum to national stimulus packages." The WSJ is less convinced, wondering if world leaders "in their haste to prevent a future crisis, may inadvertently worsen the current one." Why so pessimistic? The newspaper points out that the summit zeroed in on the root cause of the current financial crisis—high-risk lending and investing—and policy-makers are now considering a crackdown on the practice, a move that would further freeze up credit markets. "This is a big signal to everybody to clamp down on their banks to tighten lending standards," Simon Johnson, a former chief economist at the International Monetary Fund, told the WSJ. "The last thing you want to do in a global credit crunch is go around and basically tell people to tighten, tighten, tighten."

Months of negative press finally seem to have had an effect on U.S. fat-cat mentality. The NYT and WSJ report that Goldman Sachs will award no year-end bonuses to its top seven executives, "easing political pressure" on one of the firms benefiting from the bank bailout and putting "heavy pressure on Goldman Sachs's competitors, including Morgan Stanley, to take similar action." JPMorgan Chase, meanwhile, is "poised to slash thousands of jobs," according to an admittedly anonymous single-sourced report in the Daily Telegraph. It writes: "'Banks are being forced to right-size their businesses as they face the fact that clients are going to be doing a lot less business over the next 12 months,' said one source close to JP Morgan."

It took the nadir of an industry to bring it into step with management, but it appears that the United Automobile Workers is ready to back the Big Three to the hilt in the quest for an auto industry bailout. The NYT writes how UAW head Ron Gettelfinger has been briefed by GM on its dismal cash position and firmly believes that GM going bankrupt also would doom Ford and Chrysler, and with them the livelihood of his 139,000 members. "The future of the U.A.W. will be determined over the next two weeks," Gary N. Chaison, a professor of labor relations at Clark University tells the NYT, adding: "If GM goes bankrupt or doesn't get a bailout, it's just going to be a shadow of what it was 50 years ago." Even as Democratic lawmakers craft an aid package for the Big Three, auto part makers—who depend on Detroit—are "requesting access to the government's $700 billion financial-industry rescue fund," the WSJ reports. But what if the auto industry doesn't make the cut and all three domestic producers go under? Foreign automobile manufacturers would fill the void, experts tell the NYT, and "they are established enough to take control of the industry and its vast supplier network more quickly than is widely understood." Says Center for Automotive Research Chief Economist Sean McAlinden, "You would have an auto industry in the United States more like that of Mexico and Canada: foreign-owned."

And, finally, Penthouse is bullish on Vegas, even as shares of casino businesses like The Sands and MGM Mirage continue to tank. The adult-magazine and Web site publisher is eyeballing property on the Vegas Strip, the Associated Press reports, citing an interview CEO Marc Bell gave the Las Vegas Review-Journal this weekend. "We're looking to make a presence, take something and clean it up and fix it up and give it a new image," Bell told the newspaper. "We think it would be a tremendous draw." The casino trades are already speculating on what that cleaned-up look might mean: naked dealers. That's one way to revive business.