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Economy in Brief

Forecasts For U.S. Growth & Inflation Are Subdued
by Tom Moeller  February 13, 2012

The economic expansion is expected to continue into next year, but its growth rate will be at or below trend. That's indicated in the latest from the ASA/NBER Economic Outlook Survey of Professional Forecasters released on Friday. For the economy overall, real GDP growth is expected to continue at 2.3% for this year, a slight pickup from last year's 1.7%. Growth should rise further to 3.0% by the end of the year. As was the case in 2011, modest growth in consumer spending growth of a subpar 2.1% is expected to be accompanied by firm 7.1% growth in business investment. Activity in the housing sector also is forecast to continue and perhaps outpace the rest of the economy. However, the level of housing starts in twelve months should still be one-third its 2005 peak.

Moderate economic growth is forecast to be accompanied by subdued gains in payroll employment of roughly 125,000 per month into 2013. Under this scenario the unemployment rate would continue its decline and average 8.0% by early next year. However, as has been the case recently, that decline will probably reflect modest 1.2% growth in employment and perhaps less growth in the labor force.

This subdued growth forecast is expected to put little or no upward pressure on price inflation. In fact, stability in energy and food prices should contrast with the strength of the past year and leave growth in the CPI lower at 2.0% versus the 3.3% increase during 2011. Core price inflation also is expected to be stable at a 1.9% rate. This is elevated versus 0.6% during 2010.

No increase in short-term rates is forecast as the Federal Reserve recently indicated. However, the bond market is expected to be less sanguine about the outlook for inflation and growth. Thus, long term rates are projected to rise to 2.55% by early next year from less than 2.00% currently.

The figures from the latest National Bureau of Economic Research Economic Outlook Survey are compiled by the Federal Reserve Bank of Philadelphia and can be found in Haver's SURVEYS database.

Survey of Professional Forecasters Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 2011 2012
Real GDP (% Chg. SAAR) 2.2 2.3 2.6 3.0 2.8 1.7 2.3
 Personal Consumption Expenditures 2.3 2.3 2.4 2.6 2.2 2.2 2.1
 Business Fixed Investment 7.1 6.6 6.9 6.1 4.4 8.6 7.1
Housing Starts (Thous Units) 660 680 710 740 770 610 700
Consumer Price Index (% Chg. SAAR) 2.0 2.0 2.1 2.1 2.1 3.3 2.0
 Core CPI 1.9 1.8 1.9 2.0 2.0 2.1 1.9
Unemployment Rate (%) 8.4 8.3 8.2 8.1 8.0 8.9 8.3
Three-month T-bill (%) 0.03 0.05 0.06 0.08 0.08 0.05 0.06
Ten-year Treasury Bond 2.01 2.14 2.30 2.40 2.55 2.79 2.21
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