Saturday, January 06, 2007

Forecasters Upbeat for 2007

From the Wall Street Journal

Economy PoisedFor '07 Rebound, Forecasters Say
"The U.S. economy is poised to shake off the housing slump and regain momentum by the end of this year, and the credit goes to techies, bankers, chefs and shoppers, according to a Wall Street Journal survey of economists.

The panel of 60 economists who participated in the Journal's latest semiannual economic forecasting survey offered an optimistic outlook for 2007: The service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates. That would allow the economy to expand at a rate fast enough to keep investors happy, but slow enough to keep inflation at bay.....

...On average, the economists predict that inflation-adjusted gross domestic product, a broad measure of economic activity, will grow at an annualized rate of 2.3% in the first half of 2007 and 2.8% in the second half. That's up from a sluggish 2% in the third quarter of 2006, but still far below the robust annual growth rates of 3.2% for 2005 and 4.1% for early 2006....

....The rapid expansion of technology companies such as Google Inc. and the huge bonuses lavished on New York investment bankers are just a couple of signs of the service sector's strength. Across the country, restaurants, hospitals, software makers and consulting firms are growing and hiring. All told, service businesses, which make up about 80% of the nation's economy, added 1.1 million jobs from May through November."

And Inflation is not a threat as I've said repeatedly....

"The economists surveyed expect year-to-year inflation to decline to 1.7% in May from 2.0% in November. As a result, they expect the Fed to shift its focus from fighting inflation to helping the economy grow, lowering short-term interest rates to 4.75% by the end of 2007 from the current 5.25%.

That's a big change from six months ago, when forecasters saw the Fed's battle with inflation as the greatest challenge facing the economy. "The Fed was hoping to slow the economy down enough to take the wind out of inflation without triggering a recession," says Nariman Behravesh, chief economist at
consulting firm Global Insight in Waltham, Mass. "So far it looks like it has succeeded."

By Mark Whitehouse - WSJ

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