Economists see solid, if not spectacular, US growth into 2004
WASHINGTON, (AFP) - The US economy's blistering pace of growth in the third quarter is unlikely to continue, but most analysts see solid if not spectacular growth into 2004.
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The sizzling 7.2 percent pace in third-quarter gross domestic product may be a one-time event, economists say, but momentum should carry into the fourth quarter and well into 2004.
A Wall Street Journal survey of 53 economists showed, on average, a prediction of four percent growth in the fourth quarter of 2003 and 4.1 percent growth in the first quarter of 2004. That pace, the survey found, is likely to hold at roughly 3.9 percent for the remainder of 2004.
David Rosenberg, chief North American economist at Merrill Lynch, said the economy will get another dose of stimulus in early 2004 as more tax cuts kick in, with other factors providing tailwinds.
"Come on -- it's an election year," he said. "And these have an uncanny ability to outperform non-election years by around 1.5 percent in terms of GDP (news - web sites) growth."
He noted that tax refunds will provide the equivalent of a wage boost of 2,500 dollars per family.
"And we'll likely get a pre-Y2K-style capex (capital expenditure) spree" as a result of business investment tax breaks.
"All told, about half of next year's expected four percent GDP growth comes out of government stimulus measures," he said.
Ethan Harris at Lehman Brothers said business spending is coming to the rescue of the economy as consumer spending begins to fade.
"Coming out of the war in Iraq (news - web sites), there was a lot of concern that there would be a 'dropping of the baton' in the economy, with the consumer running out of gas before the business sector was up and running," Harris said.
"It now appears that a smooth transition is taking place. ... The recovery looks increasingly balanced and sustainable."
In one sign of renewed confidence, the University of Michigan consumer sentiment index rose to 93.5 in November from 89.6 in late October.
Consumer sentiment is watched closely as a gauge of consumer spending, which represents about two-thirds of US economic activity.
"Even though consumer (spending) is softening a little bit, consumers feel better about the future because job growth is picking up," he said.
"Things can really get better on the spending side if confidence remains relatively strong."
Meanwhile, Federal Reserve (news - web sites) officials have been increasing hints that they are in no rush to boost interest rates, in a move to ease concerns in financial markets that a rate hike could hurt business and consumer sentiment and crimp growth.
Some Fed members have suggested that the "potential" US growth rate -- the pace of sustainable growth without sparking inflation -- could be as high as 4.5 percent, instead of the 3.5 percent benchmark used historically.
Philadelphia Federal Reserve Bank President Anthony Santomero told a Fed forum in Washington that the US economy is gathering steam but that the job market is still lagging.
"The recovery, tenuous at first, has finally begun to gain momentum," he said. "Third-quarter GDP was stronger than expected."
Santomero said the Fed must look ahead to avert renewed inflationary pressures but noted that this was not a problem at present.
"In light of significant excess capacity and benign inflation pressures, any policy adjustment need not take place in the near future," he said.
The comments came as bond market investors have pushed up interest rates in anticipation of a tightening by the Fed as early as March 2004.
But Robert DiClemente at Smith Barney said the Fed will be on hold until it is clear the economy is on a sustainable path.
"The Fed's message to markets may continue to be 'get back' until they are satisfied that growth is not only self-feeding but that demand is sufficiently solid to root out any last remaining risk of deflation," he said. |
