Analysts forecast rebound in economic growth, jobs recovery

Monday, September 15th 2003, 12:00 am

By: News On 6

WASHINGTON (AP) _ The U.S. economy, after three years of lackluster growth, is finally poised to begin a sustained rebound that will start to cut the unemployment rate, a national business group predicted Monday.

The National Association for Business Economics, or NABE, forecast the gross domestic product, the country's total output of goods and services, would grow at a 4.5 percent annual rate in the July-September quarter and at a 4 percent rate in the October-December period.

That forecast, if proven correct, would mark the first time since 1999 that the GDP has been able to grow at a rate of 4 percent rate or better for two consecutive quarters.

The economy was first hit by the bursting of the stock market bubble in the spring of 2000 and then by a recession that began in March 2001. Those events were followed by the September 2001 terrorist attacks, corporate accounting scandals and the uncertainty generated by the war in Iraq.

``After wallowing like a dismasted sloop in a storm-tossed sea ... the U.S. economy finally appears to have hoisted its sails,'' said Duncan Meldrum, president-elect of NABE and chief economist at Air Products and Chemicals Inc. of Allentown, Pa.

The new forecast, presented at the NABE annual convention in Atlanta, was prepared by a panel of 35 professional forecasters drawn from the 2,500-member organization.

The group credited the monetary policy of the Federal Reserve Board, which has pushed the key interest rate it controls down to a 45-year low, and President Bush's third round of tax cuts for providing the push the economy needed.

For the whole year, NABE projected GDP growth of 2.6 percent this year and 4 percent in 2004. That would be the best showing since the GDP grew by 4.1 percent in 1999 as the country was in the midst of a record 10-year-long economic expansion.

While economic forecasters have projected rebounds for the past three years that have failed to materialize, Meldrum said the NABE panel believed the optimism now would prove warranted.

``An awful lot of positive stimulus has been put in place both from the tax cuts and the Federal Reserve,'' he said. Businesses also were finally beginning to step up their own investment spending, which had been a missing ingredient in the recovery, he added.

The NABE panel said business activity will finally be strong enough to put an end to what so far has been a ``jobless'' economic recovery.

While the U.S. economy has officially been out of recession since November 2001, companies have continued laying off workers to hold down costs. This year alone, businesses have slashed their payrolls by nearly a half-million workers.

While the layoffs are predicted to stop in the final quarter of this year as businesses begin hiring back workers, the NABE forecasters didn't expect a rapid decline in the unemployment rate, now at 6.1 percent.

They predicted the unemployment rate would still be around 5.8 percent at the end of 2004, in part because businesses will still be striving to hold down costs by boosting their productivity _ getting more output from fewer workers.

The strong productivity growth will help to contain inflation pressures, the forecasters said. They predicted that consumer prices will rise by just 2.3 percent this year and slip to 1.6 percent in 2004.

With inflationary pressures absent, the forecasters said they believed the Fed would be able to keep interest rates at the current low levels for an extended period. Half said they did not expect a Fed rate hike until at least the May-July period next year.

However, the group did expect long-term interest rates, which are set in financial markets, to continue rising in response to the stronger economic growth.

The group forecast that the benchmark 10-year Treasury note, a key determinant of mortgage rates, will be around 4.5 percent later this year and exceed 5 percent by the end of 2004. The 10-year note fell to 3.1 percent in mid-June, pushing mortgage rates to 5.21 percent, the lowest level since the 1950s.

Higher mortgage rates will dampen home sales and construction, but not until next year, the forecasters said. They saw housing construction climbing to 1.72 million homes and apartments this year, a bit above last year's record 1.71 million units, but retreating slightly to 1.63 million units in 2004.