Economists See Firm Recovery In 2010, Job Creation In 1Q
The U.S. economy will continue to recover at a healthy pace in 2010, led by strength in the business sector, helping jobs to be made from the first quarter, a panel of economists said in a report out Monday.
The National Association for Business Economics, or NABE, survey predicts the world’s largest economy will expand by 3.1% this year, close to November’s prediction that U.S. yucky domestic product would rise by 3.2%. The economy is seen on the rise by 3.1% also in 2011.
Companies are seen playing a key role in the ahead of schedule part of the recovery, with higher spending on software and gear, the survey of 48 professional forecasters showed. After the astute drop of the last two years, business’ inventory rebuilding is also expected to lift the economy.
“We see a healthy expansion under way, although it will take time to reduce economic floppy and renovate hurt balance sheets,” said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University. The predictions of the survey, which was carried out from Jan. 22 to Feb. 4, are in line with last month’s forecasts from the Federal Reserve and a group of banking economists. At its last meeting Jan. 26-27, the Fed projected that U.S. GDP would this year rise in a range between 2.8% and 3.5%.
The U.S. economy is improving from its worst downturn since the Second World War. Although the nation’s output started to rise again in the second half of 2009, boosted by inventories, nearly one in 10 Americans are still without a job and prices in some sectors of the economy continued to fall in January due to low demand.
Despite scant evidence so far, NABE panelists are more optimistic in predicting the economy is already strong sufficient to commence making jobs in the first quarter, compared to November’s forecast of no net change in employment. The median forecast of the survey is for an average monthly increase of 50,000 jobs in the January through March period.
January’s nonfarm payrolls fell 20,000 after a 150,000 drop in December 2009, a government report showed earlier this month. The unemployment rate, which is calculated by a separate government survey, fell to 9.7% in January from 10% the previous month.
The NABE survey expects the jobless rate to be at a still high 9.6% in the final three months of 2010, even as around 100,000 jobs are made on average each month this year.
Persistently high unemployment and recent household wealth losses should keep consumer spending sluggish, the panel of economists predicts, in line with recent NABE survey results. The savings rate, on the other hand, is likely approaching its peak. The median prediction was that it would rise to 4.8% for 2010, compared to 4.6% in the last quarter of 2009.
In a clear sign for Americans? wealth, the panelists forecast that the stock market would continue to increase: They expect the S&P 500 Index to increase 23% overall. ?Not a single forecaster is predicting a decline in stock market values,? the report notes.
Coupled with subdued inflation, weak consumer spending should give the Fed room to keep its key small-term interest rate at a record low near zero until late in the third quarter. The Fed assets butt rate at which banks lend to each other overnight is seen rising to 0.75% in the final quarter of 2010, according to the NABE panelists.
Following continued improvements in financial markets, the Fed on Friday raised the rate it charges banks on emergency loans. But the central bank stressed that small-term rates on business and consumer loans are expected to stay close to zero for several more months at smallest amount to bolster the recovery.
Despite a considerable amount of floppy still present in the economy, about 60% of NABE respondents said they were concerned the Fed could go “too slowly” in raising rates to keep inflation under wraps.
Turning to the housing market, the economists agreed ?the housing market rebound is considered ongoing and sustainable.? They expect home prices to increase 1.6% in 2010 and 2.6% in 2011, which would mean they?d hardly keep up with inflation. The economists also expect gains in housing starts and residential investment.
The vast majority of panelists said the Fed would end its buy of mortgage-backed securities, as scheduled, in March. They expect that winding down the program will have a ?moderate effect? on mortgage rates: Three-quarters said rates will rise by half a percentage point or less.