A panel of economic forecasters believes the economy will grow slowly in2007 as the housing market and the threat of inflation put the brakes on an overall productivity increase of 2.0%.
The panel, convened by the National Association of Business Executives, released a report on its survey this morning (May 21) that predicts the housing industry will find a bottom in 2007. "Housing is likely to remain the primary force dampening growth this year, particularly in the first half," the report states. "Home building is projected to reach its low point in 2007, although the upturn is likely to be gradual."
The panel did not offer much hope for those who believe an interest rate cut by the Federal Reserve is in the offing. "At present, the panel sees a pickup of inflation as a slightly larger macroeconomic risk than a slowdown in growth," says the report. "The NABE group now looks for the Federal Reserve to remain on hold throughout 2007, with the federal funds rate remaining at 5.25%. Last November the panel had looked for two rate cuts after midyear. The forecasters still expect the Federal Reserve to lower rates eventually, but only slightly. A steady funds rate of 5% is anticipated for 2008."
The group expects long-term interest rates to rise slightly, with the 10-year Treasury note hitting 5.00% by yearend.
Among the key predictions for 2007 in the survey:
* Real GDP growth of 2.8%.
* An increase of 3.2% in real personal consumption expenditures.
* Wage and benefit increases of 4.2%.
* Creation of 1.5 million new jobs, an increase of 1.3%.
* An unemployment rate of 4.7%.
The panel views the subprime mortgage market as the biggest threat to the financial markets, followed by hedge funds. A majority of the panelists said they expect an increase in risk premiums this year, across the markets for stocks, bonds, commodities, and real estate.