Phila. Fed Survey: Economy to Improve in 2nd Half

NEW YORK – The U.S. economy is expected to grow faster in the second half of 2005 than in the first half, according to a survey by the Federal Reserve Bank of Philadelphia (search) released on Wednesday.

The semiannual Livingston survey (search) of private-sector and academic economists predicted the world's largest economy would grow at an annual rate of 3.3 percent in the first half of 2005 and 3.6 percent in the second half of the year. Growth is also projected to slow to an annual 3.1 percent in the first half of 2006.

In the prior survey, the economy was forecast to grow an annual 3.5 percent in both six-month periods of 2005.

"In contrast to the last survey, where the output growth forecasts for both halves of 2005 were identical, this survey's forecast is stronger for the second half than for the first half of 2005, suggesting increasing optimism as the year progresses," the Philadelphia Fed said in a statement.

The U.S. economy grew by an annual 3.5 percent in the first quarter o 2 pmf 2005, according to government figures.

Thirty-nine economists participated in the June survey compared with 23 in the prior survey in December 2004. The Livingston survey is the oldest continuous survey of U.S. economic forecasts, launched in 1946.

The forecasters' predictions for inflation were much higher than six months ago, particularly for producer prices, but still showed an expected deceleration in price pressures.

In the June survey, consumer price inflation was expected to average 2.9 percent in 2005 and 2.7 percent in 2006. That compares with a forecast for a 2.4 percent CPI rate in both 2005 and 2006 in the December survey.

For producer prices, annual average inflation was forecast at 4.2 percent this year before falling to 2.1 percent in 2006. In the prior survey, economists had expected producer prices to rise 2.4 percent this year and 1.3 percent next year.

In April, consumer prices were up 3.5 percent and producer prices were up 4.8 percent on year, government data showed.

The unemployment rate is expected to dip from 5.2 percent in June 2005 to 5.1 percent in December 2005, where it would remain through mid-2006. In the previous survey, the forecasters had predicted a rate of 5.2 percent in December 2005.

The U.S. jobless rate was 5.1 percent in May, the latest government data show.

According to the survey, interest rates on three-month Treasury bills would rise this year, then level off in 2006. The economists expected the three-month rate to be 3.2 percent by the end of June 2005, rising to 3.8 percent by the end of 2005 and then to 4.2 percent in 2006.

The forecasts were higher than in the last survey. For longer-term rates, however, the forecasters had lowered their predictions for the benchmark 10-year Treasury note, though they still expect these rates to rise.

They now predict the yield on the 10-year Treasury note to be 4.3 percent at the end of June and 4.8 percent at the end of December 2005. Rates would rise to 5.1 percent by mid-2006 and 5.2 percent by the end of next year, the poll said.

The 10-year Treasury note was yielding 3.92 percent on Wednesday. Three-month bills paid 3.019 percent.

The Federal Reserve has raised its benchmark federal funds rate by a quarter-percentage point eight times sine June 2004, bringing it to its current 3 percent.

But despite the 200 basis points of tightening, long-term rates have fallen, a phenomenon Fed Chairman Alan Greenspan (search) has labeled a "conundrum."

The economists surveyed still expect U.S. stock prices to rise, though not by as much as previously forecast. The S&P stock index is seen at 1,250 at the end of 2005 and 1,325 at the end of 2006, they said. The S&P last traded at 1,200 on Wednesday.

Long-term forecasts were holding steady. The economists believe the United States will grow 3.2 percent annually over the next 10 years, the same as in the previous survey.

Inflation, as measured by the consumer price index, was seen averaging 2.5 percent over the next 10 years, unchanged from the last six surveys dating back to December 2001.