The world’s largest economy will expand at an average 2.75 percent annual rate in the first six months of the year, down from a prior estimate of 2.9 percent and a 5.9 percent surge in the fourth quarter, according to the median estimate of 52 economists. The survey, taken from March 1 to March 10, also showed the outlook for consumer spending improved.
The slowdown “is more like a bump on the road to recovery,” said Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research in New York. “We are beginning to exit the bunkers.”
Economists projected unemployment will retreat faster than previously anticipated after the latest data showed the labor market began to thaw in the first two months of 2010 as job losses diminished. The lowest inflation rate in five decades will allow the Federal Reserve to keep its target rate near zero through the third quarter, the survey showed.
A smaller drop in stockpiles added 3.9 percentage points to growth in the fourth quarter, the most in 22 years and a feat that is not likely to be repeated early this year, economists said.
“The initial big kick from inventories will start to fade,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We’re looking more at business equipment spending and for exports to be key drivers” of the recovery.
Corporate Investment
Purchases of equipment and software increased at an 18 percent pace in the fourth quarter, the most in almost a decade, the government reported Feb. 26. Exports have been expanding since May as global trade recovers from last year’s collapse.
General Electric Co., the world’s biggest maker of jet engines and locomotives, is expanding in China, Vice Chairman John Rice, who oversees GE’s Technology Infrastructure segment, said at an industry conference in Miami last month.
GE, which gets more than half of its sales outside the U.S., last year announced joint ventures to develop high-speed rail and avionics in the country that will create hundreds and preserve thousands of U.S. jobs, he said Feb. 17.
“Someday, the market in China is going to look like the market in the U.S., and we’ve got to be equipped with the resources to serve the market in the same way,” Rice said.
Consumer Spending
Consumer purchases, which account for 70 percent of the U.S. economy, will grow 2.1 percent this year and expand 2.5 percent in 2011, according to the survey. By comparison, spending rose 3.3 percent on average over the two decades through 2007.
“Consumer spending is growing but it’s very weak,” said David Resler, chief economist at Nomura Securities International Inc. in New York. “The underlying trend in employment has moved to positive and that prevents consumer spending from being weaker.”
Unemployment held at 9.7 percent last month and, even accounting for job losses caused by East Coast blizzards, the economy lost a fewer-than-forecast 36,000 jobs.
Rebounding from the weather-induced losses, the U.S. may add as many as 300,000 jobs in March, the most in four years, David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, said in a Bloomberg Radio interview this week.
Unemployment Forecast
Joblessness will fall to 9.6 percent in the third quarter, down from a prior forecast of 9.8 percent, the economists forecast in the survey. It will average 9 percent in 2011.
The U.S. has lost 8.4 million jobs since the recession began in December 2007, the most in the post-World War II period. The Obama administration says the $787 billion stimulus plan passed one year ago last month has funded up to 2 million jobs, and is pushing for passage of more legislation to create or save more.
Households are still trying to overcome a record loss of wealth during the recession as home values and stock prices slumped, one reason why spending will be slow to recover.
Rising stocks are helping mend the damage. The Standard & Poor’s 500 Index rose 65 percent last year from its 12-year low reached on March 9. After stalling earlier this year, the market rebounded this month to add on 2.7 percent so far in 2010.
Little inflation on the horizon means the Fed will hold the target rate for overnight loans between banks at its current range of zero to 0.25 percent through the first nine months of the year, according the survey median, the same as in the prior survey. The rate will rise to 0.75 percentage point by the end of the year.
The central bank’s preferred price gauge, which tracks consumer spending and excludes food and fuel costs, will rise 1.2 percent this year, the smallest gain since 1962, the survey showed.
By Bob Willis and Kristy Scheuble – businessweek.com
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