Economy Seen Slowing More Sharply: Philly Fed

Source : The Business Times, August 13, 2008

NEW YORK - US economic growth is expected to slow more sharply in the coming months than previously forecast with employers shedding staff into next year, according to a Philadelphia Federal Reserve survey released on Tuesday.

Economists lowered their forecasts for third-quarter gross domestic product growth to a 1.2 per cent annual rate from the previous 1.7 per cent estimate, according to the bank's quarterly Survey of Professional Forecasters.

'Growth in US real output over the next few quarters looks slower now than it did just three months ago,' the Philadelphia Fed said on its Web site.

In the fourth quarter, the US GDP growth forecast was slashed to 0.7 per cent growth, from the previous 1.8 per cent forecast.

US GDP grew 1.9 per cent in the second quarter, according to a first estimate from the government. The Fed's survey in May had pegged that quarter's growth at 0.2 per cent.

The current survey also forecast the US unemployment rate would be 5.7 per cent in the third quarter, above its previous 5.4 per cent forecast, then rising to 5.8 per cent in the fourth quarter.

'A weaker near-term outlook for the labour market accompanies the outlook for slower output growth,' the Philadelphia Fed said.

US non-farm payrolls are forecast to shrink by an average 46,500 per month in the third quarter, above the previous forecast loss of 4,800 per month. In the fourth quarter, payrolls are expected to shrink an average of 45,400 per month in the fourth quarter, versus the previous forecast gain of 26,500 per month.

The US unemployment rate rose to a four-year high of 5.7 per cent in July, when 51,000 non-farm jobs were lost, according to government data.

Economists expect employers to shed jobs at a slower rate in the first three months of next year before adding workers in the second quarter of 2009.

US core PCE inflation, a gauge the Federal Reserve watches closely, is estimated at 2.2 per cent in the third quarter and 2.1 per cent in the fourth quarter.

US core consumer prices, which exclude food and energy, were forecast at 2.5 per cent in the third quarter and at 2.3 per cent in the fourth quarter. -- REUTERS