The latest issue of Blue Chip Economic Indicators (BCEI) hit my inbox this morning. BCEI surveys apprx. 50 leading economists and forecasters for their latest views on the economy, interest rates, inflation, etc. Here are the latest findings from their October 3-4 survey. As always, keep in mind that mainstream economists tend to err on the optimistic side.
The consensus view on the economy improved modestly in the latest survey, thanks to the government’s latest estimate of 2Q GDP, which improved from 1.0% to 1.3%. Considering that, the BCEI consensus view is that GDP will expand by 1.7% for all of 2011.
Remember that GDP averaged only 0.85% in the first half of the year, so that means the economy must grow by more than 2.5% in the second half of the year to average 1.7% for the whole year. We don’t get the government’s first estimate of 3Q GDP until the last week of this month, but most of the economic reports we’ve seen in the last few weeks don’t suggest that the economy grew by 2.5% or more in the 3Q.
According to the BCEI, the economists have grown slightly more optimistic, as a group, primarily because: 1) factory shipments have accelerated over the past three months; 2) sales of cars and light trucks jumped 8% in September, the highest level since April; and 3) the ISM manufacturing index improved more than expected in September to 51.6, up from 50.6 in August.
I could point out numerous other reports over the last month or so that were either negative or below expectations, so it will not surprise me if the BCEI consensus on GDP is revised lower next month. Time will tell.
As for GDP growth in 2012, the consensus fell to 2.0%, down from 2.2% in September. The latest 2.0% number is down one full percentage point from the July estimate of 3.0% for next year.
Personal consumption expenditures (PCE) are expected to grow at apprx. 1.8% in the second half of 2011, compared to 1.3% in the first half. PCE for 2012 is now expected to grow at only 1.9% versus 2.1% in the September survey.
The Consumer Price Index is expected to be 3.1% for all of 2011 and edge lower to 2.2% in 2012. Housing starts are expected to total only 590,000 units in 2011 and improve to 700,000 in 2012. The unemployment rate is expected to average 9.1% for all of 2011 and 9.0% for 2012.
Perhaps the best question in the latest survey is the likelihood that the economy will enter (or has entered) a new recession. Here is BCEI’s summary of the answers to that question:
Several factors would seem to mitigate the odds of a return to recessionary conditions in the U.S., or if a recession did occur, keep the downturn relatively mild. Business inventories are much leaner today than was the case prior to the last downturn when their collapse accounted for a substantial proportion of the decline in GDP. Residential investment is at such a low level there appears little scope for it to become a major drag on GDP as was the case in 2006 through 2010. Consumer spending also seems unlikely to contract again on a sustained basis as it did throughout 2008 and the first half of 2009.
While household deleveraging, modest job creation, persistently high unemployment and tepid gains in disposable income may keep PCE growth modest, it is likely to keep growing, bolstered in part by lower gasoline prices and further increases in car and light truck sales given the near record-high age of the existing fleet of vehicles on the road. Capital spending by business also is likely to keep expanding, supported by the record amounts of cash on corporate balance sheets and the desire to boost productivity while keeping head-counts down.
The bottom line is that this weak economy is going to be with us for a long time. If this group of economists is correct, the unemployment rate will remain in the 9% area, on average, for the rest of this year and in 2012. Couple that with GDP growth of only 2% next year, and it spells VERY BAD NEWS for incumbents in Washington come election time in just over a year.
It is especially bad news for President Obama who spent almost a trillion dollars in “stimulus” with almost nothing to show for it, and now wants to spend another half-trillion doing more of the same, while raising taxes on families making over $250,000 a year. Go figure.
Have a great weekend everyone!
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