The Obamanation

[classicman]

A bleaker outlook for economy into 2011

WASHINGTON — The U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire, according to an Associated Press survey of leading economists.

The latest quarterly AP Economy Survey shows economists have turned gloomier in the past three months. They foresee weaker growth and higher unemployment than they did before. As a result, the economists think the Federal Reserve will keep interest rates near zero until at least next spring.

Yet despite their expectation of slower growth, a majority of the 42 economists surveyed believe the recovery remains on track, raising hopes that the economy can avoid falling back into a "double-dip" recession.

The AP survey compiles forecasts of leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation. Among their forecasts:

_ Economic growth the rest of this year and early next year will weaken, to less than 3 percent. From January through May, the economy grew at roughly a 3.5 percent pace.

_ The unemployment rate will be no lower at the end of the year than it is now — 9.5 percent. A majority think it will be 2015 or later before the rate falls to a historically normal 5 percent


That's why growth of less than 3 percent is forecast into 2011. And weak growth helps explain why unemployment is likely to stay high. It takes about 3 percent growth just to create enough jobs to keep pace with the population increase.


At the same time, state budget shortfalls have emerged as a major threat in the economists' view. State and local governments cut their spending in the first three months of this year at a 3.8 percent pace. That was the biggest cutback since the second quarter of 1981, just before the economy entered a severe recession.

Then for the good news ...

Nearly two-thirds of the economists view the states' budget crises as a significant or severe threat to the rebound.

Despite such risks, 55 percent of the economists described the recovery as "on track" as of the middle of the year. The rest said it was "faltering."

"There's a risk that the loss of momentum will snowball and feed on itself, but I think in the end the recovery will stay on track," predicted another survey participant, James O'Sullivan, global chief economist at MF Global.

Ass Press