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Economists boost US forecast

Business economists see the US economy gathering momentum through this year as job growth accelerates, with inflation edging modestly higher, a survey showed yesterday.

The National Association of Business Economists (NABE) boosted its forecast for this year for US GDP growth to 4.7 percent, up from 4.6 percent in February. The economists maintained their outlook for 3.8 percent growth next year.

The biggest risk to the outlook, according to the economists, was a possible terrorist attack on the US, with high energy prices and rising interest rates also seen as potential threats.

"One should conclude from the latest survey that the expansion is now on a solid and sustainable path," said Duncan Meldrum, the association's president and chief economist.

"If there is a dark lining in this silver cloud, however, it is the upward revision to the panels forecast of inflation for 2004 and 2005. Rising prices of energy and other industrial commodities are contributing to the higher inflation, but so too is robust growth of overall demand, a typical source of cyclically rising inflation," Meldrum said.

Still, the NABE economists said they expected only modest increases in interest rates by the Federal Reserve, and said these were unlikely to derail the world's largest economy.

The NABE forecast suggested consumer prices should increase 2.3 percent for both this year and next, up from previously projected increases of only 1.6 percent this year and 1.9 percent next year.

"Inflationary pressures are clearly starting to mount," the NABE report said. "Nevertheless, the panel does not expect the Fed to sharply raise interest rates; and therefore, rising rates do not pose a major challenge to continued strong economic growth through 2005."

An upward revision came from employment growth, now expected to rise somewhat faster than previously forecast.

This is expected to drive the unemployment rate down to 5.5 percent this year on average and to 5.3 percent next year.

The economists said they do not believe the occupant of the White House will make much difference to the level of employment in December 2008, at the end of the next presidential term.

The panel projected non-farm establishment employment under President George W. Bush at US$139.8 million and at US$39.9 million under Senator John Kerry.

The fastest growing components of GDP in this year's forecast are business fixed investment (projected to grow 9.8 percent) and exports (9.4 percent).

The US merchandise trade deficit, however, is now forecast to come in at about US$550 billion for this year, up from the prior forecast of US$542.6 billion.

The economists pointed to slow growth of the euro area trading partners as the primary culprit.

The panel also said the next president will make relatively little difference in the level of the stock market in December 2008.

The panel projected the level of the S and P 500 under Bush at 1,514 and at 1,446 under Kerry, a difference of 4.7 percent.

The report was based on a survey of 31 economists from May 1 to 14.
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