Tags: Economists | Slash | Growth | Forecasts | GDP

Economists Slash Growth Forecasts, Warn GDP to Be Revised Lower

By    |   Wednesday, 11 Aug 2010 02:57 PM

Economists are trimming their estimates for U.S. growth, underscoring the tenuous status of the recovery.

And it’s not just future numbers that look dim. Economists surveyed by MarketWatch forecast that the 2.4 percent growth rate recently reported for the second quarter will be revised down to 1.3 percent.

The downward revision will result from the just-announced $49.9 billion trade deficit for June, the economists say.

They forecast an expansion of only 2.5 percent for the final half of the year, well below the historical rate of 3 to 4 percent.

A survey of 67 economists by Bloomberg produced a slightly more optimistic estimate for second-half growth — 2.55 percent was the median prediction.

But that’s still a sharp decline from the 2.8 percent consensus that came just last month. Stubborn joblessness, which totaled 9.5 percent in July, will continue to depress consumer spending, the economists say.

And with consumer spending accounting for about 70 percent of the economy, that’s not good news.

“Simply put, job growth in the private sector hasn’t improved as we would’ve expected,” John Silvia, chief economist at Wells Fargo Securities, told Bloomberg.

“The consumer continues to contribute to growth but at a subpar pace.”

Private sector payrolls gained only 71,000 last month, while the economy overall lost 131,000 jobs. Meanwhile, consumer spending was unchanged in June.

The economists surveyed by Bloomberg estimate consumer spending will rise 1.5 percent for the year as a whole, down sharply from their forecast of a 2.4 percent increase last month.

The survey produced an estimate for unemployment to average 9.6 percent this year and 9.1 percent next year.

The bleak labor market is putting a vise on income, and that in turn makes it more difficult for consumers to spend.

Personal income was unchanged in June.

“Unemployment is high, income growth has been pretty slow,” Michael Feroli, chief U.S. economist at JPMorgan Chase, told Bloomberg. “Household wealth is a lot lower than it was three years ago.”

Goldman Sachs, which has cut its estimate of 2011 growth by 0.9 percentage point, explained its reasoning in a note obtained by Business Insider.

“The main reason is the heightened resistance by many members of Congress to extending various fiscal supports to economic activity, as they worry about rising risks of longer-term fiscal instability,” Goldman economists wrote.

Goldman also sees three big problems in the private sector:

• “The overhang of unoccupied housing remains near its record high.
• Employers remain cautious in hiring.
• Consumers appear unlikely to reduce saving materially.”

Economists at the Federal Reserve have lowered their sights as well. “The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in its latest statement.

The slowdown will keep the Fed from raising interest rates until the second half of next year, according to Bloomberg’s survey.

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Economists are trimming their estimates for U.S. growth, underscoring the tenuous status of the recovery. And it s not just future numbers that look dim. Economists surveyed by MarketWatch forecast that the 2.4 percent growth rate recently reported for the second quarter...
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Wednesday, 11 Aug 2010 02:57 PM
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