Blue Chip forecasts slowed US consumer spending this year
Monday, 11 June 2007
WASHINGTON, June 10 (Reuters): US consumers will curb spending this year after being hit by continued troubles in the housing sector, but business investment is set to pick up, adding to economic growth later this year, according to a survey of economists released Sunday.
Economists surveyed in the closely watched Blue Chip economic forecast downgraded their expectations for GDP growth in 2007 on a year-over-year basis to 2.1 per cent from their forecast a month ago of 2.2 per cent.
Slowed consumer spending, said the economists who were surveyed last week, will be the main factor behind slower growth, as well as continued troubles in the housing and subprime mortgage markets.
"Consumer spending was the economy's stalwart performer over the past year but is poised to slow markedly in the current quarter," the Blue Chip Economic Indicators newsletter said.
The consensus forecast from the economists surveyed was for consumer spending, as measured by the government's Personal Consumption Expenditures Index, to grow by a moderate 2.1 per cent annual rate in the second quarter, followed by growth of 2.5 per cent in the third quarter and 2.6 per cent in the final three months.
That compares with PCE growth of 3.5 per cent over the last year.
Due to slower consumer spending, unit sales of autos will hit the lowest level since 1998, the group forecast.
Troubles in the housing market are expected to continue through this year, according to the survey.
"Sky-high inventories of unsold homes, tighter lending standards and rising mortgage rates suggest it will remain a drag on growth throughout the remainder of the year," said the newsletter, which released the forecast.
However, economists expect that the degree of drag the housing market will exert on GDP growth will diminish as the year wears on.
Even with slowing consumer spending, economists are expecting businesses to pick up the slack.
Manufacturing activity picked up in March and April and, as a result, the consensus forecast now is for total industrial production to grow at annualised rates of 3.2 per cent in the second quarter, 2.8 per cent in the third and 3.1 per cent in the final three months of this year.
That compares with an outright contraction at the end of 2006 and tepid growth of 0.9 per cent in the first quarter.
"Helping to prompt the revival in manufacturing are signs of a distant rebound in new orders for capital goods that this month led to small increases in consensus forecasts of 2007 and 2008 in non-residential fixed investment," the newsletter wrote.
Economists surveyed in the closely watched Blue Chip economic forecast downgraded their expectations for GDP growth in 2007 on a year-over-year basis to 2.1 per cent from their forecast a month ago of 2.2 per cent.
Slowed consumer spending, said the economists who were surveyed last week, will be the main factor behind slower growth, as well as continued troubles in the housing and subprime mortgage markets.
"Consumer spending was the economy's stalwart performer over the past year but is poised to slow markedly in the current quarter," the Blue Chip Economic Indicators newsletter said.
The consensus forecast from the economists surveyed was for consumer spending, as measured by the government's Personal Consumption Expenditures Index, to grow by a moderate 2.1 per cent annual rate in the second quarter, followed by growth of 2.5 per cent in the third quarter and 2.6 per cent in the final three months.
That compares with PCE growth of 3.5 per cent over the last year.
Due to slower consumer spending, unit sales of autos will hit the lowest level since 1998, the group forecast.
Troubles in the housing market are expected to continue through this year, according to the survey.
"Sky-high inventories of unsold homes, tighter lending standards and rising mortgage rates suggest it will remain a drag on growth throughout the remainder of the year," said the newsletter, which released the forecast.
However, economists expect that the degree of drag the housing market will exert on GDP growth will diminish as the year wears on.
Even with slowing consumer spending, economists are expecting businesses to pick up the slack.
Manufacturing activity picked up in March and April and, as a result, the consensus forecast now is for total industrial production to grow at annualised rates of 3.2 per cent in the second quarter, 2.8 per cent in the third and 3.1 per cent in the final three months of this year.
That compares with an outright contraction at the end of 2006 and tepid growth of 0.9 per cent in the first quarter.
"Helping to prompt the revival in manufacturing are signs of a distant rebound in new orders for capital goods that this month led to small increases in consensus forecasts of 2007 and 2008 in non-residential fixed investment," the newsletter wrote.