The U.S. economy will slow more than previously estimated through next year as elevated unemployment tempers consumer spending and companies trim investment plans, economists surveyed by Bloomberg News said.
The world’s largest economy will grow an average 2.5 percent in 2011, less than the 2.8 percent projected last month and slower than an estimated 2.7 percent this year, according to the median of 59 forecasts in the survey taken Sept. 1 through Sept. 9. Analysts also expect household purchases will cool and the jobless rate will hold above 9 percent.
Economists’ dimmer outlook is at odds with that of Federal Reserve Chairman Ben S. Bernanke, who said conditions are in place for a pickup in growth next year. Survey participants also pushed back the timing of the Fed’s first rate increase to the fourth quarter of 2011 from the prior three months.
“The economy is stagnating,” said Nariman Behravesh, chief economist at IHS Inc., a consulting firm in Lexington, Massachusetts. “Consumer spending isn’t going anywhere. Unemployment is going to be very slow to come down, so we’ll be stuck in the mid-9 percent range for a while.”
Such forecasts help explain why Democrats may lose control of the House of Representatives in the November elections. Yale University economist Ray Fair, who has developed a formula using economic data that would have correctly predicted all but three presidential elections since 1916, projects Republicans are ahead of Democrats by almost 2 percentage points.
President Barack Obama’s approval ratings have slipped as the economy started cooling this year and hiring stagnated. Obama’s latest proposal would extend middle-income tax cuts while letting the top rates rise.
In a speech last month in Jackson Hole, Wyoming, Bernanke said “the preconditions for a pickup in growth in 2011 appear to remain in place.” While the recovery during the past year has been “too slow” and joblessness too high, a handoff from fiscal stimulus and inventory restocking to consumer spending and business investment “appears to be under way,” he said.
Some economists surveyed by Bloomberg anticipate the economy will weaken further next year. Goldman Sachs Group Inc. and BofA Merrill Lynch Global Research are among those projecting growth will slow to an average of less than 2 percent in 2011.
At their June policy meeting, central bankers projected economic growth of between 3.5 percent and 4 percent in 2011.
Fed Rate Forecast
The Fed’s benchmark interest rate on overnight loans between banks will rise to 0.75 percent in the final three months of 2011, according to the survey median. Last month, economists forecast the first increase would come in the third quarter. The rate has been in a range of zero to 0.25 percent since December 2008. Policy makers next meet on Sept. 21.
The Standard & Poor’s 500 Index has fallen 9.3 percent from its 2010 high in April. The measure rose yesterday for the sixth time in seven days, gaining 0.5 percent to 1,104.18 at the 4 p.m. close of trading in New York.
The Bloomberg survey showed household purchases, the biggest part of the economy, will climb at a 2 percent rate in the last six months of this year, compared with a 2.25 percent gain previously forecast. Consumer spending rose 3 percent on average over the past three decades, and fell 1.2 percent last year, the biggest decrease since 1942.
“There is a palpable change in consumer buying behavior that is unlike anything we have experienced certainly for a few decades,” Doug Conant, chief executive officer of Camden, New Jersey-based Campbell Soup Co., the world’s largest soup maker, said on a Sept. 3 conference call.
One reason demand will be hard-pressed to accelerate is joblessness. Unemployment will average 9.6 percent in 2010 and 9.2 percent next year, according to the survey. A month ago, economists had projected a 9.1 percent average rate for 2011.
Some 723,000 workers have been added to payrolls so far in 2010, or 8.6 percent of the 8.4 million jobs lost during the recession that began in December 2007, the worst employment slump in the post-World War II era.
Businesses also are delaying purchases of equipment as they wait for sales to strengthen and look for more clarity on taxes, health care costs, and financial regulations.
“The reason for the darker mood is there’s a slowing in more than one area of the economy at the same time,” said Jonathan Basile, an economist at Credit Suisse in New York. “Demand is not accelerating, and firms see the uneven recovery and all this uncertainty, so they’re hesitant to invest and hire.”