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My Two Cents

How bad a recession?

Chris Farrell Sep 27, 2008

As I am writing this at work on Saturday afternoon, Washington is still negotiating the details of the $700 billion bailout. It does look like a deal will be struck before the stock market open on Monday–at least that’s the goal.

Assuming the negotiators strike a deal, I think the dicsussion will turn pretty quickly to how bad will the recession get. For instance, I was looking at some numbers calculated by Mark Zandi, chief economist at Moody’s Economy.com. For instance, pre-financial panic he figured the unemployment rate would peak at 6.5% inb the third quarter of 2009. Post-financial panic he now expects the unemployment rate to reach its peak at 7% in the first quarter of 2010. Similarly, he has hiked the peak-to-trough decline in payroll employment from 800,000 in a pre-financial panic world to 1,250,000 post-financial panic. The change in his peak to-trough decline in home prices is from a guestimate of a 26% drop to a 30% decline.

Bottom line: The financial crisis will hit Main Street hard.

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