NABE Economic Outlook

A panel of professional economic forecasters recently revised their economic outlook for the National Association of Business Economics. Highlights of the panel's predictions follow:

• 90% of NABE panelists believe that sufficient evidence exists to conclude that the U.S. economy can sustain higher productivity growth over the longer term.

• The panel forecasts 3.5 percent growth through; the end of 2003. Growth will not be nearly so rapid as in the first quarter of 2002, but there is little danger of a "double-dip" recession.

• Inflation will remain subdued. The panel does not expect inflation to exceed 2% this year or next.

• Over 85% of the panelists believe the Fed will hold off raising interest rates until at least the third quarter, if then.

• Profit growth will remain low. The panel foresees only 2% growth this year. Consequently, capital spending is likely to fall about 5% this year, before recovering in 2003. Hiring will also remain sluggish through the remainder of this year, but will gradually accelerate moving into 2003. The unemployment rate will likely be trimmed back to 5.7% next year.

When asked about the primary risk to their forecast, the panelist responses produced a tie for the top spot, with "Worsening in the Middle East conflict" and "Another terrorist attack on the U.S." tying for the top spot, each garnering 30% of the vote. The adverse impact of corporate accounting scandals was recognized by the panelists. About 70% thought the scandals would have a macroeconomic impact (80% of these panelists thought the impact would be negative). The primary damage would likely come from the scandals' impact on the stock markets, and the consequent impact on consumption through the (negative) wealth effect. We should note that the survey was conducted prior to the recent Worldcom and Xerox earnings restatements.