Lending will loosen in second half of ’08<br> as economy improves, analysts tell NABE

WASHINGTON – The worst is over for the U.S. credit and housing markets, according to the latest survey by the National Association for Business Economics.
“Although housing and credit markets will gradually loosen their grip, U.S. economic growth is expected to only slowly return to health,” said NABE President Ellen Hughes-Cromwick, who also is the chief economist at Ford Motor Co. “While our panel anticipates an improvement in credit markets and a bottoming out in housing this year, the forecasters have marked down their estimates of growth for both 2008 and 2009.”
The nation’s economy will begin to pick up by the end of the third quarter, growing at an annual rate of 2.1 percent in the year’s second half, based on the median prediction from the NABE’s April 17 to May 1 survey of 52 professional forecasters. That’s down from 2.8 percent in the group’s February poll. (READ MORE)
Respondents also pared their estimates of gross domestic product growth for 2009, to 2.7 percent over the course of the year from the February estimate of 2.9 percent.
And 56 percent of those polled agreed that a U.S. recession has developed or will develop, up from 45 percent in the February poll. “Whatever its name, the panel expects only modest near-term improvement,” the NABE said.
But more than 60 percent of respondents now anticipate that business and consumer lending will ease in the second half of 2008.
And NABE respondents predicted the Federal Reserve will keep its target for the benchmark federal funds rate – used for overnight loans between banks – at its current 2 percent through the this year. The Fed will raise the benchmark rate to 3 percent by the end of next year as inflation again rears its head, the survey predicted
(The Fed’s policymaking Federal Open Market Committee – slated to meet June 24 and 25 – has slashed its target for the funds rate by 2.25 percentage points this year, and 3.25 percent since last fall. READ MORE)
Respondents raised their estimates for inflation through the end of the year, while also increasing their projections for the national unemployment rate and the federal budget gap.
Yet they lowered their estimates of the nation’s trade deficit, predicting it will continue to narrow this year and next, at a faster rate than previously predicted. Estimates of import growth were reduced, while estimates of real exports were raised, the survey found.
“We are most of the way through the downturn, or the worst of it,” said Lynn Reaser, an economist with Bank of America Corp. in Boston and chair of the NABE survey committee, according to Bloomberg News. “Recovery forces are in place and conditions should improve over the next year and a half.”
The NABE survey report – whose predictions are slightly sunnier than those from a similar survey of economists conducted May 2 to May 8 by Bloomberg News, which called for the national GDP to grow 1.5 percent in the second half of 2008 and 2 percent in all of 2009 – comes as The Conference Board reports that its index of leading indicators rose in April for the second month in a row. (READ MORE)
The National Association for Business Economics, founded in 1959, is the world’s largest professional organization for business economists with more than 2,400 members in 41 chapters nationwide. Additional information, including summary reports on the latest NABE surveys, is available at www.nabe.com.