Posted by: jeb1 | January 31, 2011

Experts: Economy Looking Brighter

Growth ‘becoming self-reinforcing’

By Paul Davidson and Barbara Hansen

Economists are more optimistic about the recovery than they were just a few months ago, significantly upgrading their forecasts for 2011 as consumers open their wallets.

When asked to predict, nine of 10 economists said they’re more optimistic than three months ago, according to a USA TODAY survey of 46 economists conducted Jan. 13-19.

They expect the economy to grow at an annual rate of 3.2% to 3.4% each quarter this year. That’s up from quarterly median forecasts of 2.5% to 3.3% in an October survey.

“This growth is now becoming self-reinforcing,” says Mark Zandi, chief economist of Moody’s Analytics. “Businesses are going to take their stronger sales and begin to hire more aggressively, generate more income, and we’re off and running.”

Zandi expects the economy to grow 4.4% this year. That’s better than last year’s estimated 3% growth, but well short of the 5% to 7% expansion that followed previous severe recessions.

The economists say the more robust growth will help cut the unemployment rate to 9% by year’s end from 9.4% in December. They expect employers to add 200,000 jobs a month by the second half of the year, more than double last year’s rate.

Several economists said the brighter outlook is largely a response to a recent flurry of positive reports. Car and truck sales rose 11.1% last month from the year-ago period. Holiday retail sales appear to have jumped 5%, their best showing since 2005. Factory output is rising. Even the sluggish housing market has picked up.

Chris Varvares, president of Macroeconomic Advisers, says the recent stock market rally has restored much household wealth. “That’s allowing consumer spending to strengthen,” he says.

Americans are also loosening their purse strings, he says, as a more stable job market makes them less nervous about layoffs.

At the same time, cash-rich U.S. corporations are feeling more confident in the recovery’s durability. That will prompt them to hire more, says David Wyss, chief economist at Standard & Poor’s.

The economy still faces headwinds. Wyss points to budget-strapped state and local governments, which are expected to lay off 200,000 workers this year. And 71% of the economists said they’re concerned that higher energy prices will slow growth.

Other findings: 29% of economists cited global financial instability as the recovery’s biggest threat. Only 24% pointed to weak job growth; 22% cited the troubled housing market.

Despite the strengthening recovery, 93% of the economists expect the Federal Reserve to complete its $600 billion in Treasury purchases by June to lower long-term interest rates and stimulate the economy. Yet 93% also said the Fed won’t launch another stimulus. The Fed meets this week.

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