Economic-growth outlook dims further

Survey signals rebound in consumer spending, inventories less likely

March 11, 2003|By BLOOMBERG NEWS

WASHINGTON - Economists scaled back forecasts of economic growth for a second-straight month as expectations waned for a rebound in consumer spending and inventory building, the latest Blue Chip Economic Indicators survey found yesterday.

The economy will probably expand 2.6 percent this year, down from the forecast of 2.7 percent that the survey found last month, according to the consensus of 54 economists. Gross domestic product grew 2.4 percent in 2002.

The outlook "continued to deteriorate over the past month as surging energy prices, the likelihood of an imminent U.S. war with Iraq and severe winter weather caused many panel members to trim estimates of GDP in the first half of the year," this month's report said.

Forecasts for first- and second-quarter growth were each slashed by 0.4 percentage point. Estimates for the last six months of the year were little changed.

The U.S. economy, the world's biggest, is expected to grow at a 2.2 percent annual rate from January to March and at a 2.8 percent rate in the subsequent three months. Growth is forecast at 3.6 percent in the third quarter, down from expectations last month of 3.7 percent, and the estimate for the final quarter of 2003 was unchanged at 3.8 percent.

A second-straight drop in auto sales and last month's Northeast snowfall, the biggest in seven years, hurt retail sales and contributed to the lower expectations for spending. Households are expected to buy 2.1 percent more goods and services at an annual pace this quarter, down from a forecast last month of a 2.4 percent increase. Consumer spending rose at a 1.5 percent annual rate in the last three months of 2002.

This month's Blue Chip survey was taken before the Labor Department issued its unemployment report Friday. That showed companies cut 308,000 jobs last month, the biggest decline since the aftermath of the Sept. 11 attacks, and the unemployment rate rose to 5.8 percent.

"The employment report was obviously a disappointment," William Poole, president of the Federal Reserve Bank of St. Louis, said after a speech yesterday. "It clearly points in the direction of the economy not recovering on the track that we hoped would take place."

Poole said the central bank couldn't tell whether the drop in payrolls was an aberration or a trend.

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