The U.S. economy should avoid a recession, but just barely, with growth averaging 0.75% in the first half of the year, according to a survey by the National Association for Business Economics, released yesterday.
“U.S. economic growth is expected to slow to a crawl in the first half of 2008,” said Ellen Hughes-Cromwick, NABE president and chief economist at Ford Motor Co. “While a slight majority of our panel of forecasters expects the economy to avoid a recession in 2008, growth is expected to average just 3/4% before accelerating in the second half in response to fiscal and monetary stimulus.”
NABE calls the expected rebound in the second half “significant.” Growth for the second half is now seen at 2.8%, for a 1.8% average for the year, down from a 2.6% projection in the last survey. Just under half of the NABE panel expects a “relatively muted” recession will have occurred by the end of this year.
The survey also predicts further decline in the trade deficit, and for the dollar to improve in value versus the euro. Unemployment will rise and the federal budget deficit will grow, the panel predicts.
Headline and core inflation will be higher than predicted, the panel said, with core up 2.0% this year, and the headline number up 2.5%.
“The biggest change in this month’s survey was a dramatic reduction in the outlook for interest rates,” NABE said. “In November, the panel expected the Fed to keep the funds rate at 4.5% through 2008. With the weakening growth outlook and the funds rate now down to 3.0%, the group now expects the Federal Reserve to cut its target federal funds rate to 2.5% by the end of 2008, and gradually bring it back to 3.5% by the end of 2009. The panelists expect the yield on 10-year Treasury notes to end 2008 at 4.10%, little changed from year-end 2007. In November, they expected the yield to rise to 4.75%. Like the funds rate, the long Treasury rate is expected to rise in 2009, ending the year at 4.5%. The panel does expect that the stock market will recover the ground recently lost, with the S&P index rising to 1500 by the end of 2008 and to 1600 in 2009.”
