Economists Expect GDP To Falter In 2011

Results from the poll used to create the Blue Chip Economic Indicator show that economists believe that US GDP will grow at a slower rate than they had previously forecast for next year.

According to Reuters, “the economy is expected to grow by 3.0 percent in 2011, which is 0.1 percentage point lower than estimates made a month ago.” Part of the revision is due to the anticipation that inventories will not be rebuilt as quickly and consistently as expected. The more ominous reason is the expectation that unemployment will not rebound.

The revision, if the forecast is correct, would have a profound effect on the federal budget deficit and the size of the national debt. The White House expects to continue to expand government spending over the next decade. It is gambling that IRS receipts will pick up to largely offset the rise in expenditures. The improvement in these receipts depends almost entirely on an active consumer and growing business activity.

The deck is already stacked against an explosive recovery from the deep recession that lasted from 2007 to 2009 and may still be in place in some parts of the United States and in some industries. The anticipated sharp improvement in consumer activity is based to a large extent on a drop in unemployment levels which continue to hover just below 10%.

The $787 billion stimulus package put into place a year ago has not arrested the increase in unemployment. There are still nearly six job seekers for every open job in America according to the BLS. The White House and Congress will put into place a new $15 billion jobs bill, but it will only work if the demand for new employees rises from improved economic activity. No matter what the incentive, US businesses will not hire aggressively if they do not believe that demand for their goods and services will increase.

The odds, if anyone wants to take them, is that the next Blue Chip poll will show a further downward revision of 2011 GDP and that the chances for reducing the deficit along the lines that the Federal Budget expects will go down further.

Douglas A. McIntyre