Economists Predict Growth in 2011

December 14, 2010 by Shirleen Von Hoffmann Leave a reply »

Courtesy of Wall Street Journal by Phil Izzo
Economists have grown more optimistic about the outlook for U.S. growth next year, predicting the expansion will accelerate as 2011 progresses, according to the latest Wall Street Journal forecasting survey.

The 55 respondents, not all of whom answer every question, raised their growth projections for gross domestic product for nearly every period, including the current quarter. On average, the economists now predict GDP will grow 2.6% in the current quarter at a seasonally adjusted annual rate, up from the 2.4% growth they projected in last month’s survey. The economy grew 2.5% in the third quarter.
The economists now see stronger expansion in the first half of 2011, with growth picking up speed as the year progresses. For the year, they expect GDP will rise 3%. Meanwhile, they have reduced the odds of a double-dip recession to 15%, the lowest average forecast of the year, from 22% in September survey.

The majority of the respondents also say that there is a better chance the economy in 2011 will outperform their forecasts than that it will underperform. Thirty-five economists said the risks to their forecasts are more to the upside; 14 said the risk was to the downside.
Data on trade, retail sales, consumer sentiment and manufacturing have been looking better. Economists also were generally encouraged by news from Washington on a tax-cut compromise that included an unexpected temporary reduction in payroll taxes in addition an extension of the Bush-era tax cuts. The survey was conducted from Dec. 3-8, so not all of the forecasts take the tentative tax deal into account. Strong data on exports Friday also caused some economists to push up forecasts. Macroeconomic Advisers, for example, raised their fourth-quarter GDP tracking forecast by 0.3 percentage point to 2.3%
About the Survey
The Wall Street Journal surveys a group of 56 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see:
“We have been anticipating the renewal of Bush tax cuts but not the possibility of payroll tax cuts,” said Maury Harris of UBS. The added tax cut is expected to provide further stimulus to the economy and boost growth and jobs.

Also adding fuel to the recovery is the Federal Reserve’s bond-buying program, though the economists said the effect may not be large. A Boston Fed study estimates that through 2012 the bond purchases will result in 700,000 additional jobs. Forty-two of 52 respondents called that estimate too optimistic.

To be sure, despite the rosier outlook there are still problems that could hold growth back. A disappointing November employment report showed a small 39,000 increase in jobs, while the unemployment rate ticked up for the first time in three months to 9.8%. Though more than 4-in-5 economists don’t see the unemployment rate increasing from here, the pace of job growth still is expected only to bring the jobless rate down slowly. On average, the economists still expect the unemployment rate to sit at 9% at the end of next year, with the economy adding around 160,000 jobs a month.

Meanwhile, the housing market has shown some signs of stabilization but sales continue to be under stress and construction remains muted. The economists expect continued moribund housing starts in the new year, while home prices are seen flat.
At the same time, concerns remain about turmoil in Europe’s economy, with the economists on average putting about 1-in-3 odds of a country exiting the euro zone in the next three years.

Be Sociable, Share!

Leave a Reply

Footer Image