Economists cut U.S. growth forecast again

WASHINGTON (Reuters) - Projected U.S. economic growth for the rest of this year and next was revised down for a third month in a row by a panel of about 50 economists.

The latest Blue Chip Economic Indicators report on Thursday said the weaker outlook for second-half 2010 growth stemmed from lower expectations for consumer spending, business investment and private construction.

"Growth in the current quarter now is expected to be little better than the disappointingly soft advance registered last quarter," the survey said. Gross domestic product grew at a meager 1.6 percent annual rate in the second quarter, less than half the first quarter's 3.7 percent rate.

But the economists' group said that, after the mid-year soft patch, it saw a gradual improving trend setting in with growth slightly surpassing trend rate in the second half of 2011.

Blue Chip defines GDP trend growth at about 2-3/4 percent a year.

"For all of 2010, real GDP now is forecast to increase 2.7 percent on a year-to-year basis, 0.2 of a percentage point less than a month ago and 0.6 of a point less than predicted in June," the survey said.

Its consensus forecast for real GDP growth in 2011 was cut by 0.3 of a percentage point from a month ago to 2.5 percent.

"Given the depth of the recession, a forecast of roughly trend growth this year and next amounts to a very disappointing pace of recovery, with little progress expected to be made in lowering the unemployment rate," the forecast said.

Its consensus forecast is that the U.S. unemployment rate will end this year at 9.6 percent and fall only to 9 percent by the end of 2011.

It forecast that after averaging 554,000 new housing units in 2009, starts this year will rise to 600,000 and to 760,000 units in 2011. "Although residential investment appears destined to subtract from GDP in the second half of this year, double digit growth is expected by early 2011, with rates of growth over 30 percent by the second half," Blue Chip said.

The economists said they expect short-term interest rates to remain very low before starting to rise next summer. They said the Federal Reserve -- the U.S. central bank -- likely will keep the federal funds rate at its current range of zero to 0.25 percent through mid-2011, finally raising it to 0.75 percent by the end of 2011.

(Reporting by Glenn Somerville; Editing by James Dalgleish)