Wahz, i keep wondering if the recovery in the economy is sustainable. While most pundits think this is so, I wonder if you have given thought to a fall in GDP next year as the tax and refi stimuli lose their effect. I do not know the answer, but I agree that this year will be good. What I am worried about is what happens to stocks and telecom if the economy falters. I know you had laid out the scene for a secular bull market. What would change your mind> And if so, how would you handle your stock picking? thanx
POLL-Analysts upbeat on US economy, as long as jobs come
Reuters, 01.20.04, 7:45 AM ET
By Wayne Cole
NEW YORK, Jan 20 (Reuters) - Analysts have become more optimistic about the U.S. economic outlook in the latest Reuters G7 poll, seeing faster growth and still benign inflation.
Gross Domestic Product, or the economy's entire output, is seen running at an annual 4.2 percent this year, up from 3.6 percent in the last poll in October.
Much depends, however, on employment recovering enough to sustain income and consumption when temporary stimuli such as tax cuts and mortgage refinancing fade.
Progress on the jobs front is seen as unspectacular with most analysts expecting unemployment to decline to only 5.6 percent by year-end from December's surprisingly low 5.7 percent.
That, says Lehman Brothers' chief U.S. economist Ethan Harris, means GDP growth might be contained to around 4.0 percent instead of the 6.0 percent seen in past recoveries.
"A virtuous cycle of recovery has started in the U.S. and is likely to continue for at least a few more quarters," said Harris. "It is likely to cause only a gradual closing of the output gap and a gradual decline in the unemployment rate."
The output gap -- the difference between what the economy could produce and what it actually produces -- has become a buzz word among policy makers. It is cited by Federal Reserve officials as a reason interest rates need not rise soon.
Lehman's Harris estimates the gap is around 1.0 percentage point of unemployment and 2.0 points of GDP and closing them requires the economy to move faster than its potential for a considerable period of time.
That is one reason he does not expect the Fed to hike at all this year. Not all analysts are so restrained but still the median expectation in the poll is for no tightening until the third quarter and then only a quarter point to 1.25 percent.
That view, in turn, reflects a broad consensus that inflation will be slow to revive.
Median forecasts are for the core consumer price index, which strips out food and energy, to gradually rise to an annual 1.5 percent by the fourth quarter from its current four-decade trough of 1.1 percent.
Bill Dudley, chief economist at Goldman Sachs, argues that a combination of the output gap, an unusually wide divergence between inflation and unit labor costs and an extraordinarily high level of profit margins will keep inflation contained.
The danger of higher commodity prices are overstated, he says, since commodities represent only about 5 percent of U.S. GDP and energy accounts for half of that.
Still, Dudley also thinks financial markets are complacent about the outlook for 2004 given the wide range of outcomes possible for growth and the potential for shocks.
"Large, and in our view, chronic budget deficits, open-ended commitments to secure the peace in Afghanistan and Iraq, loss of momentum toward further trade liberalization, unsustainable current account deficits, and a household sector that is saving an unsustainably small share of its income," were just some of his concerns.
The poll suggested the twin deficits would indeed remain a concern.
Median forecasts were for the U.S. budget deficit to hit $445 billion in calendar 2004, or around 4.0 percent of GDP, and narrow only slightly to $414 billion the year after.
Meanwhile, the current account deficit is put at $594 billion this year and $585.3 billion in 2005 despite the on-going fall in the dollar.
Not all are alarmed by the swathe of red ink, however.
John Lipsky, chief economist at J.P. Morgan,
"Warnings about deficient national saving reflect an excessively static view," he says.
"Dynamic considerations provide a more appropriate -- and less worrisome -- perspective," he said, arguing that the sharp acceleration in growth in recent months will reduce fiscal imbalances faster than many foresee.
Copyright 2004, Reuters News Service
News 
Market Data 
Discover 
AI
