U.S. economic growth should slow over the coming year as consumers cut back on spending but improved business confidence should help beef up hiring, a wide-ranging survey of forecasters found.
The poll from the National Association For Business Economics, published on Monday, showed economists now expect U.S. gross domestic product to grow 4.3 percent, down from 4.7 percent in a survey conducted in May. Growth is then expected to slow to 3.7 percent during 2005.
That would still be an impressive rate by global standards, although analysts warn persistently high oil prices threaten to dent growth even further, as would any major terrorist attack.
Forecasters in the NABE survey predicted the price of a barrel of crude oil would drop from its current level of around $50 to $40 by year-end and $35 at the close of 2005.
If they are right, the economic impact of high oil prices should be muted. But with the energy price spike showing no sign of abating, analysts acknowledged that was a big ’if.’
“Certainly the possibility exists that we could be wrong,” said Carl Tannenbaum, chief economist at La Salle/ABN AMRO and one of the analysts responsible for compiling the findings.
“It’s very clear that energy has the potential to act as a tax on some of the components that we see in the GDP forecasts, consumer spending being chief among them,” he added.
Energy will also probably contribute to a pickup in inflation during 2005. Analysts looked for the consumer price index to close 2004 at a 3.1 percent year-on-year pace, and then cool to 2.3 percent next year.
Inflation excluding energy and food, known as the core CPI, is estimated to average just 1.7 percent from the third quarter of 2004 through the end of 2005, down from a forecast of 2 percent in NABE’s May survey.
Oil prices could also hurt the profitability of U.S. firms, the survey found, but not enough to curtail their hiring plans as sky-high productivity moderates. The panel revised downward its forecast of profit growth for both 2004 and 2005, in part due to higher costs of worker compensation.
Despite tighter profit margins, analysts foresaw solid employment gains over next year, predicting the creation of almost 220,000 new jobs per month on average.
The unemployment rate is expected to fall only modestly, to 5.3 percent by the end of 2005, mainly because of once-discouraged workers who return to the labor market.
Helping to sustain growth in coming months is an expected narrowing of the trade deficit. Analysts foresee a decline in imports as consumer demand wanes, and a jump in exports.
The United States’ improved position on the trade front should help offset a predicted drop in demand for housing, which was a central engine of growth in 2004.
However, before the trade gap narrows it will likely balloon further. Analysts see the deficit totaling a record $610 billion for 2004 as a whole, up from forecasts of a $550 billion trade gap in the May survey.