Business Economists Boost U.S. Growth Forecast Despite Katrina

The National Association of Business Economists on Sept. 26 raised their average forecast for U.S. gross domestic product growth for the full year 2005 to 3.5% from 3.4% in a prior survey in May.

For 2006, the panel kept its forecast for 3.4% growth.

"While Hurricane Katrina had devastating effects on countless families and several regional economies, our panel sees a relatively modest and short-lived negative impact on the national economy," said Stuart Hoffman, the incoming NABE president and chief economist at PNC Financial Services Group. "The NABE panel continues to expect solid growth of GDP and reasonably steady core inflation of 2.3%, near the top of the Fed's comfort range."

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The NABE panel said it sees growth reduced by 0.4 percentage point in the third quarter and 0.2 point in the fourth quarter as a result of the Katrina devastation.

With regard to other economic indicators, NABE sees downward revision for the U.S. trade deficit (from $662 billion to $629 billion) and growth in U.S. personal and government spending for both 2005 and 2006. IIt expected the Federal Reserve's main interest rate to be at 4.0% by the end of this year and 4.5% by the end of 2006. The federal funds rate is currently 3.75%. The NABE panel did make an upward revision to its expectations of headline inflation for 2005, saying consumer prices are expected to advance by 3.5% year-over-year in the fourth quarter, up from 2.8% reported in the May survey and 1.3 percentage points above the panels' expectation from the February survey.

Copyright Agence France-Presse, 2005

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