WASHINGTON, 16 September 2003 — Top business economists yesterday ramped up forecasts for US growth this year and in 2004, saying tax cuts and super-low interest rates would generate enough speed to create jobs.
The economy is set to expand at a 2.6 percent pace in 2003 and 4.0 percent in 2004, according to a panel of 35 economists in the National Association for Business Economics (NABE).
In a similar survey in May, the analysts had predicted gross domestic product (GDP) growth of 2.3 percent in 2003 and 3.6 percent in 2004. “The US economy finally appears to have hoisted its sails,” said NABE chief economist Duncan Meldrum.
Low interest rates and the initial impact of President George W. Bush’s $350-billion tax cut package appeared to be driving up spending, Meldrum said. “Significant upgrades were seen in expectations for consumer spending and business fixed investment; these categories are among the prime beneficiaries of the last round of tax cuts,” he said. In the immediate outlook, the NABE economists said they expected GDP to grow at an annual pace of 4.5 percent in the third quarter of this year, and 4.0 percent in the last quarter.
The report was released on the eve of a meeting of Federal Reserve policymakers, who are widely expected to leave interest rates unchanged at a 45-year low because of fears for the weak jobs market.
US employers slashed 93,000 jobs in August, taking seven months of uninterrupted losses to 595,000 jobs and dashing hopes of relief for job seekers as the recovery gained traction.
But the NABE analysts predicted jobs growth ahead.
About two-thirds of NABE panelists expected businesses to boost job numbers by at least 100,000 in a single month some time before the end of 2003. Ninety-five percent said this would happen within six months. The unemployment rate was forecast to fall from 6.1 percent in August to 5.8 percent by the end of 2004.
“While higher employment will help reduce joblessness, civilian labor force growth implied by the forecast also will speed up, dampening the improvement in the unemployment rate,” the report said.
“This is a typical result in a recovery period as improving conditions in the labor market entice workers currently classified as ‘discouraged’ to renew their efforts to find employment.” Despite the expected acceleration in economic growth, the NABE panel reduced its forecast for inflation.
The analysts trimmed the forecast for consumer price inflation by 0.2 percentage points to 2.3 percent in 2003, and by 0.6 percentage points to 1.6 percent in 2004.
Meanwhile, industrial production edged up by just 0.1 percent in August, restrained by weakness in manufacturing, especially for big-ticket goods such as automobiles.
The Federal Reserve said yesterday the small increase in industrial activity came after a revised 0.7 percent advance in July, even stronger than the 0.5 percent first reported. August’s performance, however, was weaker than the 0.3 percent increase that economists were expecting. At factories, production dipped by 0.1 percent in August following three straight months of gains.