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Economy in Brief

U.S. Forecasts of Growth Mirror Recent Past
by Tom Moeller   September 21, 2010

Each quarter, the Federal Reserve Bank of Philadelphia surveys a group of professional forecasters to gain perspective on the outlook for the U.S. economy. In the August survey, the panel expected the current recovery to continue. Through the third quarter of 2011, real GDP growth is expected to average 3.0%, accelerating from 2.6% during the last four quarters. Last year at this time, forecasters correctly expected moderate overall economic growth due to reluctant consumers burdened by excessive levels of debt and housing activity that was depressed by overbuilding. Currently, expectations of a continuation of moderate economic growth stand in contrast to the usual pattern of acceleration to 6-7% which followed most past recessions.

Expected moderate growth is founded on consumer spending which remains burdened not only by too much debt but also by the aging of the "free-spending" baby-boomers. Expectations for improvement in consumption to under 3.0% is half the usual. The expected gain in housing is also subpar and by the end of next year will leave activity 50% below its 2005 peak. Only business investment growth of roughly 8.0% is on a par with other recoveries as past restructuring aids corporate profitability.

The lack of a swing towards faster inventory accumulation is also a large part of the subpar growth expectation for GDP growth. Accumulation is expected to be stable near a $60 billion annual rate which roughly equals last quarter. Foreign trade deficit improvement helped U.S. GDP growth in 2009 and in Q1 2010. However, that improvement ended last quarter and the real net export deficit is expected to remain roughly constant as foreign economies remain weak.

Moderate economic growth is expected to do little to reduce unemployment. The unemployment rate is expected to fall to just 9.0% by next year's third quarter.That remains the highest jobless rates since 1982-83 and reflects just roughly 1.0% growth in employment. Pricing power is thus expected to be severely constrained. The y/y growth in the overall GDP price deflator is expected to drift up to 1.5% from its low of 0.9% this year. Perhaps not-so-surprisingly, forecasters expect that lift to stem from a liquidity-driven rise in core consumer prices to 1.6% from 1.4% next quarter. Ten-year Treasury yields are expected to rise roughly 100 basis points to 3.8% by the middle of next year.

The full Third Quarter 2010 Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia is available here.

The data are available in Haver's SURVEYS database.

FRB Philadelphia Survey of Professional Forecasters (AR)   Q3'10     Q4'10     Q1'11     Q2'11     Q3'11  
Real GDP 2.3% 2.8% 2.3% 3.1% 3.0%
  PCE 2.1 2.2 2.4 2.4 2.8
  Non-Residential Investment 8.3 8.8 8.8 5.8 7.7
  Residential Investment -2.9 8.3 4.2 14.4 5.4
  Federal Government  2.1 2.1 1.4 2.6 2.3
  Change in Business Inventories $66.8B $60.0B $60.8B $60.0B $60.0B
  Net Exports -424.4B -409.7B -414.0B -419.4B -428.3.0
Unemployment Rate (%) 9.6 9.6 9.4 9.3 9.0
Consumer Price Index (Y/Y, %) 1.4 1.6 1.8 1.6 1.9
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