By Steven K. Beckner

DENVER (MNI) – The National Association for Business Economics
announced Monday that its member forecasters have downgraded their
projections for economic growth and that they expect interest rates to
stay very low throughout next year.

The NABE, which is holding its annual convention here, is expecting
faster but still moderate growth next year and only slow improvement in
labor market conditions.

Inflation is expected to rise at a modestly faster pace, avoiding
outright deflation.

“This summer’s slowdown has exposed the economy’s sensitivity to
wealth losses, the unwinding of debt, and the reductions in economic
stimulus,” said NABE President-elect Richard Wobbekind, associate dean
of the Leeds School of Business at the University of Colorado-Boulder.
“Confidence in the expansion’s durability is intact, but recent economic
weakness has prompted many panelists to scale back expectations for the
year ahead.”

The 46 professional forecasters surveyed cut their growth
predictions for 2010 and 2011. Real gross domestic product (GDP) is now
expected to advance 2.6% in 2010, down from the panel’s May prediction
of 3.2%. GDP is expected to grow by 2.6% again next year.

Although GDP growth is forecast to be unchanged in 2011, the NABE
says, “Real GDP will accelerate gradually during 2011, but remain
moderate for the whole of next year.”

The business economists anticipate that “labor market conditions
will improve slowly.” Monthly payroll gains are forecast to average
150,000 or less until the latter half of 2011, at which time gains will
improve to a range of 170,000-175,000.

“Joblessness will remain high, with the unemployment rate
persisting at over 9.5% or more through midyear 2011 before easing only
slightly to 9.2 percent by year-end 2011,” the NABE says. “This will
mark the worst post-recession job recovery on record.”

At a time when Fed officials are talking about further quantitative
easing to head off deflation, the NABE reports that its members are
“sanguine about avoiding deflation.”

“For example, core PCE inflation (excluding the volatile food and
energy components) is predicted to hit its low point of 1.0% at year-end
2010, before advancing to 1.4% next year,” it says.

When asked to express their level of concern about prices, NABE
panelists continue to rank “inflation” as a slightly greater worry than
“deflation.”

The forecasters expect the federal funds rate to remain near zero
until late in 2011 “due to the mix of persistently high unemployment and
very low inflation.”

“Even the projected late-2011 bump in the fed funds rate to 0.5%
will leave this important bellwether negative in real terms,” says the
NABE.

Long-term interest rates will also remain low, according to the
survey, with the 10-year Treasury note yield still under 4% at the end
of the forecast horizon.

** Market News International **

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