U.S. Economy Still On Solid Footing, Experts Say

If the experts have it right, expect essentially more of the same from the U.S. economy this year.

If the experts have it right, expect essentially more of the same from the U.S. economy this year.

The National Association for Business Economics unveiled its forecast for 2007 and 2008 Monday, and the group of 47 forecasters sees the economy transitioning to a sustainable growth path, with unemployment and inflation remaining stable.

“Some have suggested that we would eventually experience ‘payback,’ both climatically and economically, for the warm weather we had through the early winter,” said Carl Tannenbaum, NABE president and the chief economist ay LaSalle Bank/ABN Amro. “While temperatures abruptly returned to seasonal norms, the NABE forecast panel sees very limited economic ‘payback’ for the strength we recorded in December.”

The NABE panel sees real gross domestic product growth starting the year off modestly, and then gaining momentum in the second half. The group sees GDP growth of 2.7 percent in 2007 and 3.1 percent in 2008.

The NABE also upgraded its expectations for personal consumption this year, seeing an increase of 3.2 percent this year, up from their estimate of 2.8 percent last November. The experts look for an unemployment rate of 4.7 percent this year, with expectations of an increase in private employment of 1.3 percent, or about 1.5 million new positions.

Expectations for productivity growth call for an advance of 2 percent this year, and that gain will offset about half of the increase in labor compensation, which the NABE sees increasing by 4.2 percent this year.

The economists do see a dramatic pullback in profit growth, albeit from lofty levels. On the heels of last year’s estimated 19 surge in profits, the group sees a more modest 5 percent increase this year. One of the biggest drags on the economy will continue to be the housing market, with the NABE saying homebuilding will reach its low point sometime this year, with a gradual upturn later.

As for macroeconomic risk, the panel envisions a pickup in inflation as a slightly larger risk than a slowdown in growth. Subprime lending was cited as the greatest potential risk to financial markets, with hedge funds second on the list.

Finally, NABE panelists expect a further gradual weakening in the dollar, against both the euro and a broad basket of currencies.

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