U.S. economic outlook is bleaker, analysts say

The U.S. economic outlook is dimming as rising gasoline prices, falling home values and a shrinking job market combine to squeeze consumers, according to a Bloomberg News survey this month of 65 economists.

For all of 2007, the nation’s economy is expected to grow by 2.1 percent, the least in five years. The median forecasts for economic growth in the second and third quarters declined by 0.2 percentage points, to annual rates of 2.2 percent and 2.4 percent, respectively. That’s still an improvement from the first-quarter rate of 1.3 percent.

Consumer spending, which in the past two quarters has increased at an annual rate of 4 percent, is expected to slow to half that pace in the months ahead. Such spending accounts for more than two thirds of the national economy.

“The consumer is stressed,” Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta, told Bloomberg. “Energy prices don’t look like they’ll moderate, housing is still in a morass and the labor market has slowed conspicuously.” Still, he said, “the Fed is going to stick to their guns and guard against inflation.”

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The central bank is still expected to pare interest rates, but not until the fourth quarter, the survey found. Given the nation’s current “slightly elevated” rate of inflation, Federal Reserve Bank of San Francisco President Janet Yellen said last month at a panel discussion in Washington, D.C., “a short period of below-trend growth is likely to be helpful in mitigation of inflation risk.”

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