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U.S. Growth Forecast Lowered

Economists cut U.S. growth forecast after weak summer data

The National Association for Business Economics (NABE) said its 46-member forecasting panel cut growth projections for the world's biggest economy, pegging growth for both 2010 and 2011 at just 2.6 percent. In May, the last time the panel was surveyed, it forecast 3.2 percent growth.

"Confidence in the expansion's durability is intact, but recent economic weakness has prompted many panelists to scale back expectations for the year ahead," said NABE president-elect Richard Wobbekind.

The survey was taken from September 2 through 21, and reflected a summer of worse-than-expected economic data suggesting that the recovery was faltering.

The Federal Reserve said on September 21 that it stood ready to take action to provide further support to the economy, and many analysts now believe the U.S. central bank will begin pumping more cash into the economy as soon as next month.

A government report on Friday's showing an unexpected drop in U.S. non-farm payrolls in September further stoked such expectations.

NABE forecasters said they were more worried about the federal deficit than any other aspect of the economy, even though they expect it to shrink by $100 billion to $1.2 trillion next year.

Unemployment was No. 2 on the list of concerns, with the panel now expecting the worst post-recession job recovery on record. Forecasters expected the U.S. unemployment rate, now at 9.6 percent, to fall to only 9.2 percent by the end of 2011.

While most of the panel's 46 members felt a recovery in the housing market is intact, about a third expected a retreat after the expiration of tax incentives. The panel overall forecast a tepid 1.2 percent gain in home prices next year, trailing expected inflation of 1.4 percent.

The weak jobs market, along with limited stock-market and home-price gains, will keep consumer spending modest, the panel projected.

Forecasters also expected a bigger trade deficit, but with little impact on growth. Regarding major trading partner China, respondents saw a 33 percent chance China is experiencing an asset-price bubble, up slightly from the 30 percent chance they saw in May.

Optimism in the report was reserved for businesses, with spending on equipment and software expected to advance by double digits through 2011, and profits to rise 25 percent this year and a "strong" 6.9 percent next year.

The panel projected the federal funds rate, historically the U.S. central bank's main policy lever, to tick up to just 0.5 percent by late 2011. The rate is now between zero and 0.25 percent.

Still, tight credit conditions ranked fourth out of 12 possible concerns.


Source : Reuters