Economists meeting in Denver downgraded their 2011 forecast for U.S. economic growth by nearly 20 percent on Monday and predicted little improvement in unemployment.
The National Association for Business Economics’ outlook, taken from a survey of about 40 economists working for major corporations and universities, was considerably gloomier than what the group forecast in May.
Optimism earlier this year for a strong, or at least moderate, rebound was dashed by disappointing economic developments in recent months, including tepid demand from consumers and reluctance by corporations to hire.
Gross domestic product will grow by 2.6 percent this year and next, the economists forecast, instead of the 3.2 percent they predicted in May. Fourth-quarter 2010 GDP growth was revised to 2.3 percent from 3.2 percent.
Unemployment, now 9.6 percent nationally, will fall to 9.2 percent by the end of next year, according to the survey. In May, the economists had predicted it would sink to 8.5 percent.
The survey results “portend a slower growth scenario” than what appeared possible six months ago, said University of Colorado economist Richard Wobbekind, who as incoming NABE president presented the outlook at the group’s annual meeting in Denver. “This reflects the realities of a recovery from a recession brought on by financial crisis.”
In Colorado, the 8.2 percent unemployment rate is lower than the national average. But Wobbekind and other local economists have gone through the same process of lowering economic expectations for Colorado.
Early forecasts predicted slight growth in employment this year, but now the Colorado economy is expected to shed 30,000 to 40,000 of its approximately 2.4 million jobs. Many of the losses have come from the construction and financial services sectors.
Kenneth Simonson, chief economist for the Associated General Contractors of America, said construction won’t rebound until consumer demand returns, followed by corporate investments in real estate.
“I think we’re in for several more months of pain” (before hiring resumes), he said.
NABE’s survey predicted the S&P 500 stock index will rise to 1,175 by the end of this year and 1,240 by the end of 2011; both are lower numbers than the May forecast. The index closed at 1,165 on Monday.
Stocks have been on a run lately, fueled in part by expectations that the Federal Reserve Bank plans to stimulate the economy by making large purchases of 10-year Treasury bonds.
Mark Cliffe, London-based chief economist for ING Group who was in Denver for the conference, said the market seems to be ignoring that the Fed plans to act because the economy is weak.
“The market’s behavior is somewhat at odds with what has been happening with the real economy,” he said. “Most would say this is an economy that still needs a fiscal stimulus, but the political reality is that’s unlikely to happen.”
The NABE survey predicted that the Fed will raise short- term interest rates to just 0.5 percent by the end of next year from the current 0.125 percent, and that consumer prices will rise a modest 1.4 percent. The economists expressed nearly equal concern with the rising federal debt and continued unemployment. The threats of inflation and deflation were less urgent, they said.
Corporate profits and capital spending were the only areas where the economists’ forecast rose from May to now, Wobbekind said.
He presented a lump of coal to the retail industry, forecasting a 2.5 percent increase in holiday sales.
“I certainly don’t think most retailers are going to be excited when they see our number,” he said.
Greg Griffin: 303-954-1241 or ggriffin@denverpost.com
