Source: Reuters

The “nasty” U.S. recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released on Thursday said.

Additionally, a sustained retreat in prices for goods and services is a very real possibility that would further drag on the economy, according to the forecasting unit’s report.

“Where only last quarter we were worried about inflation, we are now worried about its very rare opposite: deflation,” the report said. Falling prices would cut demand and discourage employers from hiring.

“The record collapse in oil prices has brought with it welcome relief to motorists throughout the country and an effective tax cut of $440 billion in the form of a lower oil import bill,” the closely-watched report said. “Nevertheless the swift fall in oil prices is now lowering the absolute level of consumer prices and bringing with it likely declines in nominal GDP over the next three quarters.”

Where the forecasting unit in summer had projected a “subprime” outlook for the U.S. economy through the end of next year with growth at just above 1 percent, it now sees the economy facing a winter of discontent.

“The news from the economy is bad,” the report said. “The recession that we had previously hoped to avoid is now with us in full gale force.”

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