Economists reduced their forecasts for
U.S. economic growth this quarter amid concern that record oil
prices and shriveling job gains will sap consumers’ ability to
spend, according to a monthly Bloomberg News survey.
The world’s largest economy will probably grow at a 3.9
percent annual rate from July through September, slower than the
4.2 percent estimated last month, according to the median of 54
economists surveyed by Bloomberg News. For the year, the economy
is forecast to grow 4.4 percent, a one-tenth of a percentage point
less than what was estimated in the June survey.
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“The high energy prices are taking a toll on consumers and
now, with less hiring, there is less income as well,” said
Richard DeKaser, chief economist at National City Corp. in
Cleveland. DeKaser marked down his estimate for third-quarter
growth to 3.7 percent from 4.8 percent.
Hiring slowed for a fourth month in July as businesses added
32,000 employees to payrolls, the fewest this year. Concern about
possible supply disruptions pushed crude oil prices to a record
last week. Less hiring and higher fuel costs may knock consumer
spending and give the Federal Reserve greater pause as policy
makers consider interest-rate increases this year, starting with
today’s meeting.
“There can be no mistaking the reality check of this
summer’s disappointing data,” Stephen Roach, chief economist for
Morgan Stanley in New York, wrote in a report yesterday. “This
recovery now looks more mythical than ever.”
The Fed’s target for the benchmark overnight bank lending
rate will reach 1.5 percent by the end of the third quarter,
according to the survey median, implying policy-makers will hold
the rate steady at either their meeting today or the one on
Sept. 21. The median forecast calls for the target to reach 2
percent by the end of the year.
The monthly Bloomberg survey was taken July 30 through Friday
afternoon, giving respondents time to change forecasts if desired
after that morning’s July employment report.
Since then, economists at J.P. Morgan Chase & Co. lowered
their third-quarter GDP forecast to 3 percent from 4 percent,
Barclays Capital Inc. moved to 4 percent from 5 percent. Neither
change would have altered the survey’s median forecast of 3.9
percent.
Lynn Reaser, chief economist at Banc of America Capital
Management in St. Louis, lowered her forecast for third-quarter
growth to 4.4 percent from 4.8 percent in the monthly survey and
said she may drop it to around 4.2 percent after running the July
job numbers through her models this week. Prior to July, job gains
in the previous two months were revised down by 61,000.
The economy grew at a 3 percent annual pace in the second
quarter as consumer spending advanced at the weakest rate in three
years, in part because of rising oil prices, according to figures
from the Commerce Department. The economy grew at a 4.5 rate in
the first three months of 2004.
Consumer spending this year is likely to grow 3.4 percent
compared with a 3.7 percent forecast last month, the survey
showed. Spending rose 3.3 percent in 2003.
So far, reports on consumer spending last month are mixed.
Sales of cars and light trucks jumped to a 17.3 million annual
rate in July, the second-most this year, from 15.4 million a month
earlier as carmakers sweetened incentives to lure buyers.
The surge in auto purchases may not have left much money over
for spending on clothing and other items. Sales at U.S. chain stores including Wal-Mart Stores Inc., Target Corp. and Federated
Department Stores Inc. increased 3.1 percent in July compared with
the same month last year, the second-lowest gain in 13 months,
according to a survey last week from the International Council of
Shopping Centers.
Bloomberg News
