A group of 47 forecasters is mildly optimistic about the U.S. economy, according to the the February National Association for Business Economics Outlook, revising their projections for U.S. GDP growth up from their last report in November.
The momentum comes from “pent-up consumer and business demand, strong growth in foreign economies, especially those in Asia, and accommodative monetary policy,” said NABE President Richard Wobbekind, associate dean of the Leeds School of Business at the University of Colorado.
Overall, the group expects the yield on the Treasury to improve, fast-growing corporate profits, low inflation, and some growth in exports, but continuing high unemployment and low home prices. Its biggest concern is the growing U.S. deficit.
The group projected that real GDP would grow 3.3% this year, up from the panel’s November prediction of 2.6%. In 2012, they say, growth will edge up to 3.4%, faster than most estimates of the economy’s longterm annual growth prospects, but consistent with recovery after a severe financial crisis
The most popular opinion, represented by 40%, was that the recovery will continue at a moderate pace, with output close to or slightly above potential. Pent-up consumer demand will be a key factor: the group’s forecast of 2.4% consumer spending growth in November has been revised upward to 3.2%. In 2012, it is projected to return to the rate of consumer spending growth over the past 20 years, 2.9%. If that occurs, car sales will improve.
One third of the respondents was more optimistic, saying the economy will grow faster, as it would in a traditional business-cycle expansion. Only 11 percent of respondents see the expansion as “subpar with severe wealth losses and onerous debt burdens inhibiting spending and lending,” a big drop from the 40 percent of panelists who held this view in November. The group sees the chance of stagflation or a double-dip recession as low, but 10% think that the recovery will be uneven and dependent on stimulus policies. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is expected to contribute 0.5 percentage point to growth in 2011 and 0.1 percentage point in 2012.
High Corporate Profits and Spending. NABE projects 9.8% growth this year 6.5% in 2012. Double-digit growth in spending on business equipment and software will also continue.
A Slowly Improving Labor Market. Monthly payrolls will rise through the year, with unemployment averaging 9.3% through the first quarter, dropping to 9.0 by next winter. The group thinks unemployment will still be 8.2% at the end of 2012.
Housing Growth Will Be Slow. The expected pace of the housing recovery will be sluggish. Although they expect housing starts to advance in 2011, panelists pared back their expectations for starts—from 720,000 in the November survey to 660,000 in the current survey. In 2012, housing starts are expected to increase to a more robust 850,000 units.
The NABE Outlook Panel’s projection for home prices in 2011 has also been pared back—from an expected increase in the FHFA index of 1.5 percent (Q4/Q4) in the November survey to a 0.4 percent increase in the current survey. In 2012, home prices are expected to increase 2.4 percent. Overall, most panelists generally expect that home prices will be “bumping along at a cyclical low,” although 21 percent of survey respondents think prices were still trending downward and 19 percent feel that prices have begun to trend upward.
More Exports. The NABE Outlook Panel expects growth in real exports to exceed growth in real imports both this year and next. The trade deficit will still increase, to $424 billion in 2011 and $436 billion in 2012. Respondents anticipate the foreign exchange value of the dollar to remain fairly stable over the forecast period.
Low Inflation. Inflation is expected to edge up, but still remain low. Core PCE inflation (excluding the volatile food and energy components) is forecast to rise gradually from 0.8 percent (Q4/Q4) in 2010 to 1.2 percent in 2011 and 1.5 percent in 2012. Most panelists view the Federal Reserve’s purchases of longer-term Treasury securities as either “somewhat diminishing the risk of deflation” or having no impact on inflation. About 20 percent of survey respondents view these purchases as “somewhat increasing the risk of undesirable inflation.” Panelists continue to be somewhat concerned about rising commodity prices.
Oil. The group’s forecast for oil prices in 2011 has increased from $86 per barrel in the November survey to $93 per barrel in the current survey. Panelists see oil prices edging up to $96 per barrel in 2012.
Higher Long-term Interest Rates. The 10-year Treasury note is expected to yield 3.9 percent at the end of 2011, up from 3.25 percent in the last survey. The yield is expected to rise to 4.5 percent by the end of next year. Concern about “high interest rates” and “tight credit conditions” remain low relative to other concerns about the outlook.
The federal funds rate will remain near zero until late in 2011 because of the combination of high unemployment and low inflation. Relative to the November survey, panelists have marked down their forecast for the funds rate at year-end 2011—from 0.175 percent to 0.125 percent. By year-end 2012, the funds rate target is expected to rise to 1.5 percent.
A Bigger Deficit. The outlook for the federal deficit in 2011 has deteriorated. Panelists have increased their forecast for the 2011 federal government deficit—from $1.1 trillion in the previous survey to $1.4 trillion in the current survey. They expect the deficit to edge down to $1.1 trillion in 2012.
“Factors restraining growth include financial headwinds, uncertainty about future federal government economic policies, a tepid housing market, and sustained high unemployment,” Wobbekind said. “Panelists do remain confident about the expansion’s durability, but are concerned about high levels of government deficits and debt, excessive unemployment, and rising commodity prices.”
The NABE panel includes forecasters Mark Zandi, from Moody’s Analytics; Kristin Krapja, from Macroeconomic Advisers; and Parul Jain, from MacroFin Analytics. The survey was administered between January 25, 2011, and February 9, 2011.
