–Monthly Job Gains 150K or Less Until Second Half of Next year
–Home Prices, Starts Have Hit Bottom, Improvement Next year

By Denny Gulino

WASHINGTON (MNI)- The outlook is for more of the same, slow
growth and high unemployment, a panel of 51 economists assembled by the
National Association for Business Economics said Monday, although
business spending is seen as a continuing “bright spot.”

The survey, taken from Oct. 21 through Nov. 4, showed only modest
changes from the previous month, with this year’s GDP upgraded a tenth
to 2.7%.

The jobs picture remains one of continued monthly payrolls gains of
150,000 or less until the second half of next year, and then not much
better.

The trade deficit is now seen widening somewhat more than
previously with oil prices a little higher than in the prior forecast.

The low interest rate environment is maintained through next year
in the latest consensus forecast, yet inflation is still seen as a
greater threat than deflation.

“To a large extent, the latest NABE forecast reflects the view that
the economy will struggle against financial headwinds,” the compilation
of forecasts said. “Forty percent of survey respondents — compared to
37 percent in October — characterize the expansion as ‘sub-par with
severe wealth losses and onerous debt burdens inhibiting spending and
lending.'”

A smaller percentage, 28%, could see the economy overcoming its
headwinds to “behave more in line with a traditional business cycle
expansion” with real output growing at a rate above potential, and
households and businesses boosting discretionary spending. A double dip
or an economy mired in stagflation are seen as low-probability outcomes.

The effect of QE2 is seen as to somewhat diminish the already
low risk of deflation. The respondents continued to see inflation as the
greater threat.

But deflation and inflation “are overshadowed by other issues,” the
report said, “such as the federal debt, high unemployment and increased
business regulation;”

“The federal funds rate will remain near zero until late in 2011
due to the mix of persistently high unemployment and very low
inflation,” the report said. “Relative to the October survey, panelists
have marked down their forecast for the path of the federal funds rate,”
now projected to remain below 20 basis points throughout the forecast
period — in contrast to the previous expectation of an increase to 50
basis points by year-end 2011.

“Long-term interest rates will also remain low, with the 10-year
Treasury note now expected to yield 3.25 percent by the end of 2011,
compared with 3.75 percent in the last survey and concern about tight
credit conditions has eased somewhat.

The “bright spot” remains business spending, with the outlook for
equipment and software purchases moving up “a bit” from October.

For business spending, “The panel continues to project sustained
double-digit growth over the forecast period,” the survey report said.
“The forecast for real spending on structures remains weak, but such
spending is now expected to expand 1.8 percent in 2011 — an improvement
over the last NABE forecast, which called for a 0.2 percent
contraction.”

Underpinning these prospects, the report said, “is a solid recovery
in after-tax profits of 25 percent in 2010. Profit gains will moderate
in 2011, but remain strong overall — up 7 percent.” Forecasts for
profits were little changed.

The NABE Outlook survey panelists “made only modest revisions to
their forecasts for the November report compared with their October
projections for economic growth,” said NABE President Richard Wobbekind,
associate dean of the Leeds School of Business at the University of
Colorado. “Projections for real GDP growth remain sub-par through the
first quarter of 2011, but accelerate gradually through the forecast
period. For next year as a whole, GDP growth is expected to be
moderate.”

The federal deficit is seen narrowing only slightly next year, to
around $1.1 trillion. Excessive federal debt has remained that single
greatest concern, even more than unemployment.

NABE Forecast Comparison
2010 2011
May 10 Oct 10 Nov 10 Oct 10 Nov 10

Real GDP, Q4/Q4 % 3.2 2.3 2.4 3.0 3.0

Real GDP, YOY 3.2 2.6 2.7 2.6 2.6

PCE 2.6 1.5 1.7 2.3 2.4

PCE Core Q4/Q4 1.3 1.1 1.1 1.3 1.3

Net Exports, blns ’05 dlrs -370.0 -416.6 -444.3 -439.7 -466.3

CPI, annual ave % 2.0 1.6 1.6 1.5 1.5

Non Farm Payrolls/Mos 120 94 68 153 136

Housing Starts, mlns 0.68 0.60 0.60 0.75 0.72

Oil Price $/barrel, Dec ave 84 77 81 82 86

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MAUDS$,M$U$$$]