Revised Merrill 2004 Forecast: 4.3% Growth In Real U.S. GDP

By John S. McClenahen Merrill Lynch & Co., New York, has raised its 2004 forecast for inflation-adjusted U.S. GDP. It now foresees 4.3% real growth for next year, up from the 4% it was predicting in early November and from the 3.1% it expects for 2003. What the securities firm describes as "solid, though not spectacular" growth will be a result of continuing monetary and fiscal stimulus. "The Federal Reserve will likely keep the target Fed funds rate anchored at 1% -- the lowest in 50 years," predicts Merrill. Fiscal stimulus will come first in the form of individual income tax refund checks and then from companies taking advantage of an accelerated depreciation allowance, says Merrill. Employment should improve in 2004, but only moderately, its economists expect. "We forecast that the unemployment rate will only fall to 5.8% by the end of 2004 as still sub-par employment growth and the return of discouraged workers to the labor force keep the unemployment rate sticky."

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