Subject:  Economists See Stronger Recovery Ahead |
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Date Posted: 22:34:20 05/21/03 Wed
Economists See Stronger Recovery Ahead
Thursday May 22, 12:03 am ET
By Tim Ahmann
WASHINGTON (Reuters) - The U.S. economy is likely to strengthen considerably in coming months and grow at a swift enough pace to lower the jobless rate a few notches by the end of next year, a panel of business economists said on Thursday.
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The 37 professional forecasters surveyed by the National Association for Business Economics look for growth in U.S. gross domestic product to exceed a 3 percent pace in the second half of this year, enough to ensure gains in employment.
The economy grew at an anemic 1.6 percent pace in the first quarter, barely picking up from the 1.4 percent logged at the end of last year. Economists say growth in the current April-June period seems little better.
Because of a weak first-half performance, the panel ratcheted back its estimate for full-year growth to just 2.3 percent from the 2.7 percent it predicted three months ago.
The association pegged the reduction on "sluggish current conditions that have resulted from geopolitical stress."
Next year's growth projection held steady at 3.6 percent, in line with forecasts from other recent surveys.
"When NABE last surveyed its outlook panel in February, the clouds of war were obscuring our view of the future," NABE President Tim O'Neill, the chief economist at BMO Financial Group, said in a statement.
"While much of the recent economic data still reflect the stress of that interval, the NABE panel appears confident that U.S. growth will soon proceed at a quickened tempo," he said.
The "quickened tempo" was seen by most of the panel as likely enough for the Federal Reserve to hold the benchmark overnight interest rate steady at a 1961 low of 1.25 percent.
However, about a quarter of the forecasters said the Fed would likely drop rates a quarter percentage point this year. An even smaller minority forecast a rise in rates.
Fed Chairman Alan Greenspan said on Wednesday expectations growth would quicken were "not unreasonable," but he cautioned the timing and extent of any improvement was uncertain.
The NABE panel saw the jobless rate holding steady at its current 6 percent level for the remainder of the year, before falling to 5.7 percent by the end of 2004.
It said wage growth of 3.3 percent this year and 3.4 percent next should underpin consumer spending, which was forecast to rise 2.3 percent in 2003 and 3.3 percent in 2004.
Rising wages coupled with low interest rates were seen keeping the housing market strong, but the panel said it expected the sector to lose some muscle in 2004.
The forecasters expect business capital spending to post just a small gain this year -- despite a projected rise in profits -- but look for a healthy increase in 2004.
None of the forecasters projected deflation, in which the overall level of consumer prices declines. Instead, the consensus was for the Consumer Price Index to rise 2.4 percent this year and 2.2 percent in 2004.
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