January 12th, 2011
Econintersect: The Federal Reserve Bank of Chicago's twenty-fourth annual Economic Outlook Symposium (EOS) consensus forecast for 2011 is for economic growth rate of real GDP is expected to be 3.0%. This conference is attended by more than 100 economists and analysts from business, academia, and government. Follow up:
A summary table of the consensus view shows surprising parallels to 2010 with some moderate improvements.
Some of the interesting commentary from the conference.
- The forecast for 2011 is for economic growth to be solid. In 2011, the growth rate of real GDP is expected to be 3.0%, an improvement from the projected 2.4% rate for 2010. The quarterly pattern reveals a strengthening of the economy as the year unfolds. The forecasted growth rate of real GDP rises from an annualized rate of 2.5% in the first quarter of 2011 to 3.3% in the fourth quarter of 2011. With the economic growth rate predicted to be just above its long-term historical trend, the unemployment rate is expected to edge down to 9.2% in the final quarter of 2011. Because economic growth is expected to improve, inflation, as measured by the CPI, is predicted to rise from an estimated 0.9% in 2010 to 1.6% in 2011. Oil prices are anticipated to rise somewhat, averaging around $85 per barrel in the final quarter of 2011. Real personal consumption expenditures are forecasted in 2011 to expand, at a rate of 2.5%. Light vehicle sales are expected to rise to 12.7 million units this year. Real business fixed investment is expected to record a solid growth rate of 7.4% in 2011. Industrial production is forecasted to grow at a rate of 4.3% this year. The change in private inventories will play a much smaller role as a driver of growth in 2011.
- Adolfo Laurenti, Mesirow Financial, explained that in the years leading up to the financial crisis, U.S. economic growth had been driven largely by credit-based consumption. However, he expressed concerns about the sustainability of such growth in the U.S. going forward. Higher savings rates and debt reduction by both the private and public sectors will be required to counterbalance this excess consumption, he said. Following a financial crisis, a lackluster recovery is not surprising, Laurenti noted. Even so, economic growth during this recovery has been disappointing thus far. Employment and housing—two key drivers in consumer spending—have remained weak. In the face of uncertainty surrounding economic conditions, businesses are still reluctant to expand their work forces. Laurenti pointed out that high-income households have recovered faster than their low-income counterparts, in part because homes make up a larger share of the latter’s total financial assets. According to Laurenti, banks are facing several competing pressures, such as those to rebuild capital, strengthen reserves, comply with new financial regulation, avoid past lending mistakes, and increase lending. He said he expects a slow recovery for banking.
- Once again, the long-struggling housing sector is predicted to have strong growth. Real residential investment is forecasted to increase in 2011, at a rate of 9.6%—which would be its best performance since 2003. Housing starts are also anticipated to improve—from a predicted 0.60 million starts in 2010 to 0.69 million starts in 2011. While improved, the anticipated 2011 level would be less than half of the 20-year annual average of 1.43 million starts.
- The ten-year Treasury rate is forecasted to increase to 3.07% in 2011, and the one-year Treasury rate is expected rise to 0.62%. The trade-weighted U.S. dollar is predicted to remain unchanged in 2011; and the trade deficit (net exports of goods and services) is predicted to decrease somewhat.
- Daniel Aaronson, Federal Reserve Bank of Chicago, stated that the historically high U.S. unemployment rate is unlikely to return to its pre-recessionary levels in the near future given the modest recovery expected by most forecasters. The critical question, noted Aaronson, is whether high unemployment is due to the business cycle (i.e., demand deficiencies for goods and services) or structural change (i.e., a mismatch in skills or location between workers and firms). If the problem is structural, said Aaronson, high unemployment is likely to persist as long as impediments to firm–worker matches remain in place. More accommodative monetary policy can have little impact in clearing up these frictions. He argued, however, that most, albeit not all, of today’s high unemployment can be explained by cyclical rather than structural factors.