Economists Forecast Strong U.S. Growth For 2006

Employment and wages are stronger, leading to higher consumer spending

Heartened by increased hiring and wage growth this year, economists raised their 2006 U.S. growth forecast, according to the latest monthly survey on the economy by Bloomberg News.

Gross domestic product, the sum of all goods and services produced in the U.S., will rise this year by 3.4%, the median forecast of 75 economists surveyed April 3-7. A month ago, economists forecast a 3.3% gain would follow the 3.5% increase in 2005.

``Employment and wages are stronger and therefore, consumer spending is stronger,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, who raised his 2006 growth estimate to 3.4% from 3.3%. ``Housing is slowing, but not as much as we would have expected, and the price of oil is so far not having that big an impact on the consumer.''

With employment gains and wage growth posing a risk of higher inflation, the Federal Reserve will raise its benchmark overnight lending rate a quarter point to 5% this quarter and hold it there through the first half of 2007, survey respondents said. Last month, economists forecast policy makers would trim rates back to 4.75% early next year.

Stronger sales are fueling earnings at U.S. companies. 3M Co., the St. Paul, Minnesota-based maker of products ranging from Scotch tape to cancer drugs, said last week that first-quarter profit rose more than its forecasts because of higher sales, sending the stock up the most in more than two years.

While higher energy costs have yet to bite, economic growth will begin to slow later this year, according the survey results. The economy will grow at an annual pace of 3% in the first quarter of 2007, slower than a projected 3.3% rate this quarter, the survey showed.

Gasoline futures yesterday rose to the highest price since October and crude oil increased to a two-month high on the New York Mercantile Exchange. Oil for May delivery rose to $68.80 a barrel, close to the record $70.85 reached on Aug. 30, the day after Hurricane Katrina.

An improving labor market and rising incomes will help keep consumers spending, said Wachovia's Silvia. The jobless rate probably will average 4.8% this year, unchanged from last's month's estimate, according to the survey.

The U.S. added 211,000 workers in March and the unemployment rate matched a four-year low 4.7%, completing the best first quarter for hiring of any year since 2000, the Labor Department said April 7. Average wages were up 3.4% from March 2005.

 

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