Despite the human toll and regional costs of this year's hurricanes, the magnitude of the federal budget deficit, the huge trade deficit with the rest of the world and concerns that housing is a bubble about to burst, the U.S. economy will likely record a solid expansion in 2005.
For example, the Washington, D.C.-based National Association for Business Economists (NABE) forecasts GDP growth, adjusted for inflation, of 3.5% this year. That matches Global Insight's expectation for 2005 and is only a tenth of a percentage point higher than Merrill Lynch & Co.'s projection of 3.4%. With its forecast of 3.4% real growth for next year, the NABE is looking for 2006 to be pretty much a GDP repeat of 2005.
These are solid growth numbers, especially taking into account that, at least in the short-term, hurricanes Katrina and Rita will have subtracted a few tenths percent from the economy during the second half of this year. NABE figures Katrina subtracted four-tenths of a percentage point from GDP growth in the third quarter and is subtracting two-tenths during the current quarter. "Hurricanes destroy wealth -- but rebuilding that wealth creates activity," notes Waltham, Mass.-based Global Insight. "The scale of Katrina's destruction means that the boost to growth will take longer than usual to come through, although it will be evident in 2006."
The year as business economists see it.