http://www.nabe.com/publib/macsum.htmlStrong GDP Growth, More Jobs, Higher Inflation and Interest Rates
May 2004
"The NABE Outlook panel raised its expectations of the pace of GDP growth and job creation," said Duncan Meldrum, NABE's President & Chief Economist, Air Products & Chemicals, Inc. "One should conclude from the latest survey that the expansion is now on a solid and sustainable path. If there is a dark lining in this silver cloud, however, it is the upward revision to the panel's forecast of inflation for 2004 and 2005. Rising prices of energy and other industrial commodities are contributing to the higher inflation, but so too is robust growth of overall demand, a typical source of cyclically rising inflation. Nevertheless, the panel does not expect the Fed to sharply raise interest rates; and therefore, rising rates do not pose a major challenge to continued strong economic growth through 2005."
Here are the highlights of the May 2004 NABE Outlook Survey:
The NABE panel again upgraded its GDP growth forecast for 2004, modestly, from 4.6 percent in our February 2004 survey to 4.7 percent .
Employment growth is now expected to rise somewhat faster than previously forecast , in six of the next seven quarters.
Inflationary pressures are clearly starting to mount, and our panel now looks for the CPI (year-over-year) to rise by 2.3 percent for both this year and next year vs. previously projected increases of only 1.6 percent this year and 1.9 percent next year.
Despite the higher inflation forecast, the panel sees little change in the path of short-term interest rates compared to the last survey.
February 2004
“We’ve been waiting anxiously for hiring to reach greener pastures.” said Duncan Meldrum, NABE's Pres. & Chief Economist, Air Products & Chemicals, Inc. “Cynics suggest that the only thing around the corner for employment is another corner, but the NABE panel remains firm in its belief that the wind will soon be at our backs and that the road to higher employment will rise up to meet us.”
Here are the highlights of the February 2004 NABE Outlook Survey:
The NABE panel upgraded its forecast for 2004 GDP growth, from 4.5% in the November 2003 survey to 4.6% today.
Personal consumption should remain the leading driver of American economic performance, with gains of 3.8% forecast for this year and 3.5% for next year.
The NABE panel overwhelmingly felt that the job market outlook would improve this year, with 31% saying it was already improving substantially, and 59% saying it was on the verge of improvement.
NABE Panel: War and Domestic Security Are Biggest Threats Facing U.S. Economy
March 2003
“Geopolitical risks – war in Iraq and domestic security – currently constitute the biggest threat to the U.S. economy, according to the latest canvass of NABE members on policy issues,” says Tim O'Neill, President of NABE and Chief Economist, BMO Financial Group. “The NABE panel is also concerned about corporate governance – more regulation is needed as recent changes have not been sufficient to boost confidence in U.S. financial markets. Monetary policy is felt to be appropriate but the panel is divided on the stance of fiscal policy. Stimulus from a modified version of the President's tax plan is expected later this year.”
A potential war in Iraq and domestic security concerns are the biggest threats facing the U.S. economy. Less than one-third of respondents feel increased regulation has instilled more confidence in our financial system. Current monetary policy is about right.
A majority of panelists believe a modified version of the President’s tax proposals will be adopted, with 59 percent expecting some dividend tax relief. Fiscal stimulus is expected to add 0.5 percent to real GDP growth in 2003.
Survey Highlights
War is the biggest problem facing the U.S. economy. Forty-one percent said international military operations and homeland defense were the biggest problems facing the economy. A growing federal deficit was identified as the next most pressing issue.
More corporate governance regulation is needed. Nearly half believe more regulation is needed, but less than one-third believe more regulation has boosted confidence in U.S. financial markets. Among the regulatory remedies suggested by panelists were creation of a separate sell-side research function in investment bank firms, cited by half the panel, and require expensing of stock options to employees, favored by 44 percent.
Monetary policy is about right. Eighty percent of NABE respondents feel monetary policy is about right; half expect short-term rates will be unchanged in six months and 37 percent expect rates will be between 25 and 50 basis points higher.
Views on fiscal policy are divided. Forty-two percent believe fiscal policy is about right. Those who think fiscal policy is too restrictive rose to 24 percent in this survey compared to only 15 percent who thought so last August. Although panelists think the odds for a double-dip recession are less than 50/50, nearly half now think fiscal, rather than monetary policy, should be used if one occurs.
Most expect a modified version of the President’s tax relief proposals to become law. Nearly two-thirds of the respondents expect aid to states and municipalities will also be included in the budget. Fiscal stimulus is expected to add 0.5 percent to real GDP growth in 2003 and 0.65 percent to growth next year.
And a detailed "outlook" for your amusement
NABE Outlook: Economy Tacking to Faster Growth September 2003
The NABE Outlook presents the consensus of macroeconomic forecasts made by a panel of 35 professional forecasters from the membership of the National Association for Business Economics. The survey, covering the outlook for 2003 and 2004, was taken Aug. 22-Sept. 4, 2003.
“After wallowing like a dismasted sloop in a storm-tossed sea for the past two years, the U.S. economy finally appears to have hoisted its sails,” said Duncan Meldrum, NABE President-elect and Chief Economist, Air Products and Chemicals, Inc. “Thanks to a stiff following breeze provided by monetary and fiscal policy, major indicators are on the rise. Our NABE panel of forecasters expects this upswing to continue through the remainder of this year and next, as the impacts from the waves of shocks that hit the economy finally subside.” Here are the highlights of the September 2003 NABE Outlook Survey: • Forecasts of economic growth for both this year and next were upgraded significantly since we last surveyed our panel in May. The consensus now calls for real GDP to expand at a 2.6% pace for all of 2003 and by a further 4.0% in 2004. 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. • We asked our participants about the factors that might be contributing to improved capital spending. Sixty percent identified the replacement of aging equipment as the leading driver, while 26% stressed the search for ever-higher productivity. Only 14% felt that the new equipment is being added in preparation for higher demand. There remains ample capacity to support the stronger pace of consumption forecast for next year if the capacity utilization rate for manufacturing only increases from 73.2% in 2003 to 75.9% in 2004, as expected by our panelists. • Despite faster growth, our panel reduced its forecast of corporate profit growth for this year and next (to 8.4% and 10.9% respectively). Firms therefore will continue to manage inventories carefully; our panel sharply reduced its outlook for additions to inventory this year. • The NABE panel foresees an eventual end to the jobless nature of the recovery. Nonfarm payroll employment, which has been declining since January, is expected to grow at a 1.2% rate in the fourth quarter of 2003 and accelerate to 1.4% for 2004.
After a succession of disappointing monthly reports from the Labor Department, we asked our participants to single out the month in which payrolls will grow by at least 100,000 positions. About two-thirds of respondents expect a reading of this magnitude sometime before the end of 2003, and 95% expect this level to be reached sometime within the next six months. The unemployment rate is forecast to fall from its current level of 6.1% to 5.8% 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. 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 anticipated acceleration in the pace of economic growth, the NABE panel reduced its forecast for inflation. Consumer prices are now expected to increase by only 2.3% this year and 1.6% in 2004. (This latter number compares to a forecast of 2.2% that emerged from our May survey.) As such, the Fed is not expected to reverse gears on monetary policy any time in the foreseeable future; when asked, only four of the 35 respondents expected any tightening during the balance of 2003. About half expect official rates to begin rising between May and July of next year. In a separate question, respondents collectively assigned a probability of only 10% to the possibility of seeing a year-over-year decline in the CPI sometime within the next year. • Perhaps the greatest change in the environment since our last survey is the rapid rise in long-term interest rates. From a low of 3.1% in mid-June, our panel now expects the ten-year U.S. Treasury bond yield to reach a peak of 4.50% later this year, and to exceed 5% by the end of 2004. According to those polled, the leading cause of this retreat has been an improving economic picture. A shift by investors from bonds to stocks and the drive by mortgage houses to re-hedge themselves also were given significant weight in explaining recent trends. A common concern is that the back up in mortgage rates will damage the housing sector, which has been among the strongest of U.S. industries for the past three years. When asked, however, almost half of our panel anticipated that home sales and values will remain at high levels during the balance of 2003. Most of the remaining respondents expect only modest declines in the months ahead. The panel expects both housing starts and residential investment to fall slightly in 2004, but not enough to dampen the overall strength of the economy. • Not surprisingly, estimates of upcoming Federal budget deficits deepened appreciably. The shortfall for fiscal year 2003 now is expected to reach $403 billion for fiscal year 2003 (up from $326 billion in the May survey) and $460 billion for fiscal year 2004 (up from $348 billion). We took the step in this survey to ask our panel about the impact of growing state and local budget deficits, which have received quite a bit of attention this year. The consensus expects the efforts to close these gaps (which, in many cases, are mandated by law) to be a modest hindrance to GDP growth. “Modest” in this case signifies that expansion will be curtailed by 0.5% or less. (See table on next page.)
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3 NABE Outlook September 2003 NABE OUTLOOK Comparative Surveys (Median Forecast Reported) 2003 Forecasts 2004 Forecasts 2002 Sep 02 Nov 02 Feb 03 May 03 Sept 03Feb 03 May 03Sep 03Actual Survey Survey Survey Survey SurveySurvey SurveySurveyANNUAL AVERAGES Real GDP & Components: Real GDP 2.4% 3.2%2.8%2.7%2.3%2.6%3.6% 3.6%4.0%Personal Consumption Expenditures 3.1% 3.0%2.6%2.7%2.3%2.9%3.1% 3.3%3.5%Business Fixed Investment -5.7% 5.0%3.8%3.6%1.4%2.0%8.0% 8.1%9.1%Residential Investment 3.9% 1.5%0.3%0.9%3.9%5.6%0.9% 0.1%-0.6%Change in Business Inventories (Billion 96$) $5.2 $35.8$29.6$27.8$20.0$4.5$44.3 $41.5$42.3Government Purchases 4.4% 2.7%2.7%2.9%2.8%3.2%2.2% 2.3%2.2%Net Exports (Billion 96$) -$488.5 -$504.2 -$504.7 -$512.8 -$519.8 -$546.4-$532.7 -$540.0-$580.4Exports -1.6% 6.6%6.1%5.1%1.1%1.0%7.6% 7.3%6.6%Imports 3.7% 6.6%5.9%5.7%2.8%4.1%6.2% 5.7%6.8%Nominal Magnitudes: Merchandise Trade Balance (Bils) -$468.3 -$498.2 -$496.0 -$511.3 -$509.0 -$548.8-$520.0 -$532.8-$587.7Federal Budget Deficit(FY)(Bils) -$157.8 -$175.0 -$185.4 -$277.5 -$326.3 -$403.3-$272.8 -$348.0-$460.0Corporate Profits (after tax) -4.0% 14.1%15.0%10.3%9.6%8.4%12.2% 14.5%10.9%Nonfarm Payroll Employment (%) -1.6% 2.3%2.1%0.6%0.0%-0.2%2.4% 2.3%1.4%Nonfarm Compensation/Hour 2.8% 3.5%3.5%3.5%3.3%3.2%3.7% 3.5%3.5%Nonfarm Output/Hour 5.4% 2.5%2.5%2.3%2.3%3.7%2.5% 2.5%3.0%Real Magnitudes: Unemployment Rate (Civilian) 5.8% 5.8%5.8%6.0%6.0%6.1%5.5% 5.7%5.8%Industrial Production -0.8% 4.2%3.6%2.6%0.9%0.2%4.4% 4.5%4.4%Capacity Utilization Rate, Mfg. 73.7 76.976.075.673.873.277.8 76.075.9Housing Starts (MM) 1.71 1.601.641.651.701.721.61 1.621.63Light Vehicle Sales (MM) 16.7 16.816.716.516.516.516.7 16.516.8 Inflation and Interest Rates: Consumer Price Index 1.6% 2.3%2.1%2.3%2.5%2.3%2.3% 2.2%1.6%GDP Price Index 1.1% 1.8%1.5%1.6%1.7%1.5%1.9% 1.7%1.3%Treasury Bills (3 month) 1.60% 2.55%1.68%1.47% 1.20% 1.02%2.68% 2.03%1.46%Treasury Bonds (10 year) 4.61% 4.95%4.39%4.35% 4.00% 4.10%5.10% 4.70%4.82%4th QUARTER TO 4TH QUARTER Real GDP 2.9% 3.5%3.3%3.3%2.7%3.3%3.5% 3.6%3.9%Consumer Price Index 2.2% 2.3%2.1%2.2%2.4%2.0%2.3% 2.2%1.8%na=not available Quarterly Forecasts % Chg at Annual Rate3-Month Treasury Bills 10-Year Treasury Bonds GDP EmploymentMay 03 Sept 03 May 03 Sept 03May 03Sept 03 May 03Sept 03Survey Survey Survey SurveySurveySurvey SurveySurveyQ3-03 3.5 4.5 0.8 0.0Sep-031.160.97 4.00 4.40Q4-03 3.9 4.0 1.4 1.2Dec-031.251.00 4.18 4.50Q1-04 3.9 4.0 1.5 1.8Mar-041.451.01 4.40 4.65Q2-04 3.8 3.8 1.7 1.8Jun-041.791.23 4.57 4.80Q3-04 3.5 3.7 1.8 1.8Sep-042.301.65 4.77 5.00Q4-04 3.5 3.6 2.0 1.8Dec-042.702.03 4.83 5.06na=not available Historical data from Haver Analytics; forecasts from NABE.