NABE November survey suggests restrained confidence in economic rebound

In its most recent survey, the National Association for Business Economics (NABE) projects a sluggish economic recovery.

“NABE Outlook survey panelists made only modest revisions to their forecasts for the November report compared with their October projections for economic growth,” said NABE President Richard Wobbekind, associate dean of the Leeds School of Business at the University of Colorado.

“Projections for real GDP growth remain sub-par through the first quarter of 2011, but accelerate gradually through the forecast period. For next year as a whole, GDP growth is expected to be moderate,” he added.
According to Wobbekind, factors restraining growth going forward include ongoing balance-sheet restructuring by consumers and businesses, and a diminished contribution to GDP growth from inventory restocking and government stimulus.

“Confidence in the expansion’s durability is intact, but panelists remain concerned about high levels of federal debt, a continuing high level of unemployment, increased business regulation, and rising commodity prices,” he said.

The NABE Outlook panel made modest revisions to its economic growth predictions for 2010 and 2011. Real gross domestic product (GDP) is now expected to advance 2.7 percent (year-over-year) in 2010, a slight increase from the panel’s October prediction of 2.6 percent. Next year’s projected 2.6 percent GDP growth rate was unchanged from October’s prediction, and, as is typical in a recovery after a severe financial crisis, shows the lack of a more pronounced cyclical rebound. The projected growth rate for 2011 is slightly below the panel’s current estimate of the economy’s long-term growth trend of 2.7 percent. The survey respondents’ estimate of trend growth has declined by one-quarter-percentage point since 2007.

To a large extent, the latest NABE forecast reflects the view that the economy will struggle against financial headwinds. Forty percent of survey respondents—compared to 37 percent in October—characterize the expansion as “sub-par with severe wealth losses and onerous debt burdens inhibiting spending and lending.” In contrast, 28 percent of respondents feel that “the economy will overcome its headwinds, and behave more in line with a traditional business cycle expansion: real output will grow at a rate above potential, and households and businesses will boost discretionary spending.” The likelihood of either stagflation or the economy slipping back into recession is viewed as relatively low.?

Consumer spending is expected to remain modest throughout the forecast horizon due to weak job gains, persistently high unemployment, and negligible growth in household net worth. This year’s holiday retail sales are still expected to be weak, rising only 2.5 percent from those of last year. Roughly half of the panelists expect the personal saving rate to fall over the forecast period, while the other half of the panel is divided as to whether it will rise further or stay at roughly the same rate.

Labor market conditions will improve slowly. Monthly payroll gains are forecast to average less than 150,000 until the latter half of 2011, at which time gains will improve at a range of roughly 150,000-170,000. Joblessness will remain high, with the unemployment rate persisting at over 9.5 percent or higher through the first quarter of 2011 before easing—but only slightly—to 9.2 percent by year-end 2011.

“This will mark the weakest post-recession job recovery on record,” said NABE spokesmen.

Panelists estimate the current long-run or natural rate of unemployment at 5.8 percent, up by one-half-percentage point since 2007.

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