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Pent-up Demand Boosts U.S. GDP Outlook, Business Economists Say

Pent-up Demand Boosts U.S. GDP Outlook, Business Economists
Consumer spending, which accounts for about 70 percent of the economy, will increase 3.2 percent this year, up from the previous forecast of 2.4 percent. Photographer: Daniel Acker/Bloomberg

U.S. companies expect the economy to grow faster than previously estimated as demand from consumers, businesses and other countries picks up, a survey showed.

Gross domestic product in the world’s largest economy will expand at a 3.3 percent pace in 2011, up from the 2.6 percent rate forecast in November, according to a survey by the National Association for Business Economics issued today in Washington. Consumer spending, business investment and exports will also increase more than previously projected.

“Pretty much across the board there has been a better view with regard to the economic recovery,” Bill Strauss, a senior economist at the Federal Reserve Bank of Chicago, who analyzed the results, said in an interview. “The consumer sector is coming back, and we’re still looking at pretty good numbers coming from the business sector.”

The report, along with recent data showing stronger manufacturing, overseas demand and consumer confidence, adds to evidence the U.S. economy is gaining momentum in 2011. At the same time, a “tepid” housing market and sustained high unemployment will restrain growth this year, the survey said.

About 40 percent of respondents expect the recovery will continue at a moderate pace with output at or slightly above potential, while about 30 percent are more optimistic about growth, the survey showed. Eleven percent characterized the expansion as subpar, down from 40 percent in the last survey.

More Spending

Consumer spending, which accounts for about 70 percent of the economy, will increase 3.2 percent this year, up from the previous forecast of 2.4 percent. Business investment in equipment and software will expand 12.1 percent, 1.3 percentage points higher than the last projection.

Export growth this year will exceed import growth, rising 8.6 percent versus 7 percent, according to the survey.

Even with improvements in the labor market, the jobless rate will remain high, according to the report. Employers will add an average of 178,300 workers to payrolls each month in 2011 as unemployment ends the year at 9 percent.

The report also said housing will lag behind the rest of the economy. Respondents cut their expectations for housing starts to 660,000 units in 2011, from 720,000 projected in the prior survey. Most said home prices will be “bumping along at a cyclical low,” increasing a less-than-previously estimated 0.4 percent.

The federal deficit, forecast to widen to $1.4 trillion this year, was the respondents’ “single greatest concern going forward,” according to the report.

Inflation Outlook

The economists surveyed lowered their forecast for the Fed’s preferred inflation gauge, which excludes food and energy costs, by 0.1 percentage point, expecting prices to increase 1.2 percent in 2011.

“The group really is not taking much concern either with inflation or deflation,” Strauss said.

Oil will rise to $96 per barrel in December, up from $86 per barrel estimated in the last survey.

Finally, the economists pushed back their forecast for the Fed’s first increase in its benchmark interest rate to the first quarter of 2012, citing “persistently high unemployment and low inflation.” The benchmark 10-year Treasury note will yield 3.9 percent, up from the previous forecast of 3.25 percent.

Forty-seven NABE members responded to the survey, conducted between Jan. 25 and Feb. 9. The National Association for Business Economics, founded in 1959, is the professional organization for people who use economics in their work.

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