US Economic Slide To Continue Into Next Year: Survey

Source : The Business Times, August 13, 2008

(WASHINGTON) Economists have soured on the US economy's prospects for the second half of 2008 and have cut growth forecasts for next year as well, a closely watched survey released on Monday showed.

While government stimulus payments helped the economy expand at a reasonable annual rate of 1.9 per cent in the second quarter, economists polled by the Blue Chip Economic Indicators newsletter expect the air to go out of the economy as the temporary lift to consumer spending fades.

Economists expect US gross domestic product to grow at a 1.2 per cent annualised rate in the third quarter, down 0.1 percentage point from the consensus July forecast, it said.

In the fourth quarter, the economy is now seen expanding at a pace of just 0.3 per cent - a drop of 0.3 percentage point from July.

While the Blue Chip forecast for 2008 growth as a whole held at 1.6 per cent, the projection for 2009 dropped to 1.5 per cent from July's forecast of 1.7 per cent.

The cut in the growth forecasts follows data showing mounting job losses, a stalled factory sector and a housing market that has yet to reach bottom.

The panel of 50 economists polled during Aug 6-7 predicts the sluggish economy will push the jobless rate to 6 per cent in December and to 6.1 per cent by the end of next year. The last time the unemployment rate was as high as 6 per cent was in October 2003. In July, it stood at 5.7 per cent.

Of the panellists polled, 78.3 per cent expect the Federal Reserve to hold interest rates steady through the end of this year, while a strong majority - 88.6 per cent - see the next rate move as up.

Separate forecasts for Treasury bill rates suggest panellists expect no rate increases until the second quarter of 2009, the newsletter said.

At their last meeting on Aug 5, Fed policy-makers left the benchmark federal funds rate at 2 per cent, where it has been since the end of April.

The percentage of economists who believe the US economy is in, or will be in, a recession this year moved up to 55.8 per cent from 54.5 per cent in July, but was still below the May peak of 60 per cent. -- Reuters