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NABE Forecast

02/28/2011

Economists are generally a boring bunch. Because I have been a long time member of the National Association of Business Economics, I am frequently surveyed by them on the economy. Their latest forecast was released this morning. But, was it boring enough?

It predicts solid GDP growth for this year, 3.3%, which is up 2.7% in our November forecast. Unemployment is expected to improve somewhat, with monthly job creation exceeding 200,000 by the end of the year — a big improvement — but don’t expect the unemployment rate to drop below 8.4% until the end of NEXT year — another jobless recovery. And, the housing market will not improve significantly this year.

Their biggest worry is the Federal deficit, which is a polite way of not saying “entitlements”. Last week, Governor Christie actually used the word and didn’t get evaporated, which is his word for what happens to people who discuss the Federal deficit in terms of the non-discretionary part of the Federal budget.

My only disagreement with their concensus is that they predict no movement in interest rates this year, but long term rates are already increasing. The Fed controls only short-term rates and have very little control over long-term rates. Long-term rates normally increase in an expanding economy, like we have, but they also reflect inflationary expectations. Our survey sees no increase in inflation this year, but they are silent about the next few years. It would have been a more interesting report if they had discussed inflation prospects beyond 2011!

As I write this, futures indicate a flat open. Last week, we ended three straight UP weeks in the market. Another DOWN week would be good for the market long term. Or, a series of FLAT weeks would also allow the economy to catch up with the market. A little boredom right now is not a bad thing!

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