Poll: Weak economic growth expected through 2011

[October 12, 2010]  WASHINGTON (AP) -- Top forecasters say the economy will grow this year and next at a slower pace than previously thought, weakened by governments and consumers spending less so they can pay down debt.

That's the findings of a new survey released Monday by the National Association of Business Economics.

The 46 economists polled tempered their expectations after seeing weak economic data in recent months. The panel reduced its forecast for annual economic growth to 2.6 percent in 2010 and 2011. That's down from its forecast of 3.2 percent in May.

The economists expect the economy will add jobs through the end of 2011, but not enough to bring down the unemployment rate below 9.2 percent. They don't see home prices rising much or the nation's soaring deficit falling much.

The mainly downbeat report comes as persistently high unemployment, weak consumer spending and stagnant wages drag on the U.S. economy. The nation emerged last summer from the deepest recession since the 1930s. But the economic recovery has not yet led to widespread job gains or growth.

"This summer's slowdown has exposed the economy's sensitivity to wealth losses, the unwinding of debt, and the reductions in economic stimulus," NABE President-elect Richard Wobbekind said in a statement.

The NABE's Outlook survey is conducted four times per year. It compiles economists' big-picture expectations for factors such as growth, hiring, home prices and spending. The economists work for industry groups, government agencies, banks and economic analysis firms.

The economy grew at a 1.7 percent annual rate in the second quarter, according to the government's latest estimate. That's a sharp slowdown from a 3.7 percent growth rate logged in the January-March quarter. Most economists expect growth to be similarly weak in the July-September quarter, with estimates ranging between 1.5 percent and 2 percent.

Consumer spending accounts for about 70 percent of economic activity. Economists told the NABE that consumer spending is likely to remain low over the next year, with families spurning retailers during the holiday shopping season.

The housing market also will struggle, the economists said. Home prices will not rise enough in 2011 to keep up with inflation, and housing starts will remain near record lows, they said.

Still, they expressed few concerns about inflation, deflation or so-called stagflation -- a dangerous mix of rising prices and slow economic growth.

The economists expected hiring to increase at a painfully slow rate. They predicted the economy will add 150,000 or fewer jobs each month until the middle of 2011, after which the numbers will improve to about 175,000. Only then will the jobless rate begin dropping, from 9.6 percent to 9.2 percent, the economists said.

The economy needs to add 125,000 net new jobs each month just to keep up with population growth.

The biggest concern among the economists was the federal deficit. They predicted it will shrink by only about $100 billion to $1.2 trillion -- a level the NABE called "extreme."

There were a few bright spots. Economists expected businesses to increase spending on equipment and software as their profits keep rising. Spending by businesses has helped keep up demand for goods from American factories, a vital sector for the economic recovery.

Foreign trade was not seen weighing on economic growth. The panel said trade deficits would remain constant as a share of gross domestic product, the broadest measure of the economy's health. Those surveyed forecast a one-third chance of a "bubble" in China's economy -- a low level of concern, the NABE said.

[Associated Press; By DANIEL WAGNER]

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