Survey: U.S. Economy Seen Gathering Momentum

By Agence France-Presse Business economists see the U.S. economy gathering momentum through 2004 as job growth accelerates, with inflation edging modestly higher, a survey showed May 24. The National Association of Business Economists (NABE) boosted its forecast for 2004 for U.S. gross domestic product (GDP) growth to 4.7%, up from 4.6% in February. The economists maintained their outlook for 3.8% growth in 2005. The biggest risk to the outlook, according to the economists surveyed, was a possible terrorist attack on the United States, 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, NABE'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." 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% for both 2004 and 2005, up from previously projected increases of only 1.6% this year and 1.9% 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% in 2004 on average and to 5.3% in 2005. 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 nonfarm establishment employment under George W. Bush at 139.8 million and at 139.9 million under John Kerry. The fastest growing components of GDP in the 2004 forecast are business fixed investment (projected to grow 9.8%) and exports (9.4%). The U.S. merchandise trade deficit, however, is now forecast to come in at about $550 billion for this year, up from the prior forecast of $542.6 billion. The economists pointed to slow growth of the euro area trading partners as the primary culprit. The report was based on a survey of 31 business economists from May 1-14. Copyright Agence France-Presse, 2004