Economists Voice More Anxiety About The Economy, Probably With No Effect

Economists in general were sanguine about the economic recovery as late as early fall. The optimism began to slide and the economy’s downward momentum has begun to accelerate.

The highly regarded survey by the National Association of Business Economists (NABE) shows that most of those polled are pessimistic that the economy will improve for the balance of this year and well into next. The prediction, if correct, will have a ripple effect on U.S. fiscal and monetary policy.

The November 2010 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 51 economists, the organization says.  Part of the group’s concern is that the impact of the federal government’s huge stimulus package will diminish. Another worrisome problem is that consumers and businesses are still over-leveraged.

The NABE actually expects that the tepid GDP growth of this year will become worse in 2011, a drop from 2.7%  to 2.6%

Consumer activity, the big engine of the US economy, will stay particularly weak. The NABE survey says that “Consumer spending is expected to remain modest throughout the forecast horizon due to weak job gains,persistently high unemployment, and negligible growth in household net worth. And any improvement in the labor situation will be insignificant. Joblessness will remain high, with the unemployment rate persisting at over 9.5 percent or higher through the first quarter of 2011 before easing—but only slightly—to 9.2 percent by year-end 2011.” That is not much of a recovery.

All of these forecasts added together lead the group to believe that the 2011 deficit will be $1.1 trillion. “NABE panelists continue to characterize excessive federal debt as their single greatest concern going forward, even exceeding worries about high unemployment, and far greater than concerns about either inflation or deflation.”

That opinion by the NABE adds the voice of  another important group that believes the nation’s major economic problems will not be addressed, or cannot be addressed next year. This conclusion has been echoed recently by the President’s panel on deficit reduction. Many analysts believe that the new Congress will not sufficiently slash government spending including defense and entitlement programs. The concerns of the NABE essentially change nothing.

America seems unconcerned as it looks at the sovereign debt problems abroad. The most recent of these is the bailout of Ireland. And there is little reason for the Federal government or Congress to worry. There is still an endless appetite for US paper even at extremely low interest rates. Treasuries remain a safe haven. The American deficit’s effect on the national debt seems to be years away.

But, the deficit now shows up on more and more radars as the one iceberg that could bring down America’s already wounded economy. As long as the concern is only talk and no action, comments by groups like the NABE barely matter.

Note: The survey, covering the outlook for 2010 and 2011, was conducted October 21 – November 4.

Douglas A. McIntyre