The peak in unemployment surpasses the 8.8 percent estimated last month, according to the median of 54 projections in a survey taken from March 2 to March 9. The average rate for the next two years will exceed the 25-year high of 8.1 percent reached in February, the survey shows.

“Even if things become less apocalyptic it doesn’t mean the unemployment rate will come down,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “It’ll be a long- term restraint on growth. Even when the economy gets back to normal, what’s normal is going to be defined down.”

The survey shows that the Obama administration’s forecasts, submitted with its budget proposal last month, are out of kilter with those of most analysts. The White House projected the jobless rate will decline to 7.9 percent next year; a worse performance means President Barack Obama’s $787 billion stimulus plan may not prove sufficient, analysts said.

The unemployment rate in February was the highest since 1983, and employers cut 651,000 workers from payrolls, the government reported last week. The U.S. has already lost 4.4 million jobs since the recession began in December 2007.

Speed Limit

Federal Reserve policy makers in January estimated U.S. long-term growth potential at 2.5 percent to 2.7 percent, with an unemployment rate of 4.8 percent to 5 percent, a level that will be exceeded for at least four years, according to the Bloomberg survey. The jobless rate averaged 5.8 percent in 2008 and 4.6 percent in 2007.

The world’s largest economy will shrink 2.5 percent this year, the most since 1946, and expand 1.8 percent next year, according to the survey median. Both figures were lower than estimated last month.

As unemployment rises, more Americans won’t be able to make mortgage or car payments, choking off growth and leading to even higher joblessness, said David Rosenberg, chief North American economist at Banc of America Securities - Merrill Lynch in New York, who projected the jobless rate would reach 10 percent by the end of the year.

“We are really in a vicious cycle,” he said. “This problem requires a massive positive shock to aggregate demand. The fiscal package as it is constructed falls short on that score.” Stimulus “has to be a lot bolder that what we have seen right now.”

No-Interest Loan

Rosenberg proposed the federal government give a $1 trillion interest-free loan to state and local governments, which account for 13 percent of the economy and employ about 20 million people.

“This comes down to the heart and soul, the fabric, of the national economy -- cops, teachers, school custodians, firefighters, highway construction workers,” he said.

While estimates for overall growth weakened, projections for consumer spending improved. Purchases, which account for 70 percent of the economy, will fall at a 1.7 percent pace this quarter, less than the 2.7 percent slump predicted last month. Economists also pared the projected decline for next quarter.

Discounters such as Wal-Mart Stores Inc., the world’s largest retailer, are benefiting. Bentonville, Arkansas-based Wal-Mart last week said sales at stores open at least a year rose 5.1 percent in February as customers sought its lower prices on gasoline, groceries and electronics.

Falling Sales

Same-store sales fell at companies ranging from department- store chains Macy’s Inc. and J.C. Penney Co. to luxury retailers Neiman Marcus Group Inc. and Saks Inc. AnnTaylor Stores Corp., whose main clientele is working women, said same-store sales dropped 24 percent in the quarter ended Jan. 31.

“The financial crisis and rising unemployment” especially hurt the company, Chief Executive Officer Kay Krill said in a statement last week. She also cited “extremely weak macroeconomic fundamentals, including historically low consumer confidence and a broad-based decline in consumer spending.”

Steps to stem the slump in growth and unclog credit markets will bust the budget. Economists anticipate the federal deficit will equal almost 12 percent of GDP this year, more than doubling last year’s 5.8 percent share.

The efforts may still fall short, resulting in “a very anemic recovery that will deliver very few jobs,” said Robert Carnell, chief international economist at ING Wholesale Banking in London. He predicts the jobless rate may keep rising into 2011.

“The unemployment rate will tick up slowly but surely,” Carnell said. “People coming into the labor force looking for a job will find it very difficult.”

Companies have been paring staff further in recent weeks. Dow Chemical Co. yesterday said it’ll eliminate 3,500 workers following its merger with Rohm & Haas Co. General Motors Corp. will cut 47,000 more positions globally, and FedEx Corp., the second-largest U.S. package-delivery firm, is axing 900 jobs in addition to more than 1,100 positions pared late last year.

 SOURCE: Bloomberg