NEW YORK – U.S. business forecasters have bad news and good news — and the good news is mainly that it's not going to be so bad.
Although U.S. economic growth in 2001 and 2002 is going to be even lower than expected, the dreaded "R" word — recession — won't come into effect. Even better, the U.S. economy ought to begin recovering by year's end, the economists said in a survey released Monday.
The 31 economic experts were the subjects of a survey conducted by the National Association for Business Economics (NABE). They slashed expectations for business investment and profits but, highlighting the resilience of the U.S. consumer, raised 2001 estimates for consumer spending.
``The panel's forecast sees no recession — more specifically, no quarter with negative GDP growth over the forecast horizon,'' Harvey Rosenblum, president-elect of the National Association for Business Economics, said in a statement.
Rosenblum is also senior vice president and director of research at the Federal Reserve Bank of Dallas.
The NABE panel cut its median forecast for real gross domestic product (GDP) growth on a year-on-year basis to 1.6 percent, from 2.0 percent growth the NABE forecast in May. And the U.S. economy slowed to its softest pace in eight years with second-quarter GDP revised to an annual 0.2 percent growth last month, down from initial estimates of 0.7 percent growth. Making it a terrible trio, the NABE panelists also lowered their estimates for 2002 GDP growth to 2.7 percent, down from the median 3.1 percent growth forecast in May.
The Bad News: Less Investment, Profit
The forecasters were pessimistic because business sector is still struggling with far less investment and profit than hoped for. Investment is forecast to contract 2 percent in 2001, sharply lower than earlier forecasts of 2.4 percent growth. In 2002, business investment is now forecast to grow a modest 1.0 percent, well below previous estimates for a 4.9 percent increase.
``The size of these revision was nearly twice what was seen in May, and reflect the weakness reported in the factory and commercial construction figures over the last quarter,'' the NABE report said.
After-tax corporate profits are now expected to contract 12 percent in 2001 against prior estimates of a 3.5 percent decrease. Profits are expected to rise 5 percent next year, against earlier expectations of a 6 percent increase.
That kind of negative outlook was reflected in the markets, where investors were trying stage a minor rally after a Friday freefall that sent the Standard & Poor's to October 1998 levels, the Dow to 9,605.85, and the Nasdaq nearly to a 2 1/2-year low.
But the NABE report emphasized that the business-investment facet of the economy is only one part of the whole.
``To a surprising degree, the downward GDP revisions are narrowly concentrated in the business investment components, which constitutes only 14 percent of the total economy,'' the report said.
The Good News: People Love Buying Stuff
NABE sounded optimistic about consumption, which makes up two-thirds of the economy, and about the growing housing market.
Real consumption expenditures are expected to grow 3.0 percent in 2001, compared to the 2.7 percent gain estimated earlier. NABE still expects 2002 consumption growth of 2.9 percent.
Residential construction is now expected to grow 1.8 percent in 2001, compared to earlier expectations for a 1.0 percent contraction, the survey said. NABE also raised forecasts for residential construction growth in 2002 to 1.6 percent from earlier forecasts of 0.5 percent. Housing starts are forecast around 1.62 million units in 2001, instead of 1.58 million units earlier predicted. The median forecast for 2002 is now 1.60 million units, up from the 1.55 million forecast made in May.
``The mix of diverging revisions reflects the degree to which the resilience of the household sector to deteriorating business conditions has caught economists by surprise,'' the report concluded.
Reuters contributed to this report.