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Fri, Jul 11, 2003 - Page 12 News List

Economists raising US estimates for the year: Blue Chip

BLOOMBERG

Economists raised their second-half forecasts of US growth this month, reflecting expectations that tax and interest-rate cuts will fuel consumer spending, a private survey found.

GDP may expand at a 3.6 percent annual rate in the third quarter and at 3.8 percent in the fourth, based on the average forecast of 53 economists surveyed July 1 to July 2 by Blue Chip Economic Indicators of Kansas City, Missouri. While those were each up 0.1 percentage point from a month ago, second-quarter and full-year projections fell after the government cut its first-quarter estimate.

Consumers in the US will have more money to spend in the second six months of the year as US President George W. Bush's US$330 billion tax cut reduces payroll withholding and raises child credits for some families, economists said. The Federal Reserve's quarter-point interest rate cut last month may encourage more mortgage refinancing and home building, they said.

"You put those three things together -- tax cuts, the child-care credit and refinancing -- and you've got an awful lot of disposable income at the hand of the consumer," said Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania.

Disposable personal income, or what a person has left after paying bills and taxes, may rise 7.2 percent in the third quarter instead of the previously projected 5.9 percent, economists in the Blue Chip survey said.

The potential for higher spending may boost gross domestic product next year, the report said. Consumer spending accounts for more than two-thirds of the world's biggest economy, which forecasters now expect to grow at a 3.7 percent pace in 2004, up from 3.6 percent projected last month, the Blue Chip said.

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