Economy to grow slowly in early 2007: Blue Chip

By Lisa Lambert

WASHINGTON (Reuters) - The U.S. economy will grow slowly during the first half of the year, but pick up strength as the months pass, a survey of top forecasters showed on Saturday.

Panelists surveyed in the Blue Chip Economic Indicators newsletter said real gross domestic product, the government's broadest measure of economic output, would likely increase by 2.7 percent this year from last year.

This was somewhat stronger than the forecast of 2.3 percent last month, with more than half of those surveyed increasing their predictions.

In the first quarter, they expected real GDP to grow at a 2.5 percent annual rate and then pick up until it reached a stronger 3 percent rate in the fourth quarter.

Inflation, as measured by the government's Consumer Price Index excluding food and energy prices, is expected to remain around the Fed's perceived comfort range of 1 to 2 percent for all of this year and next, the survey forecast.

Core CPI is expected to advance by 2.3 percent in 2007 and by 2.2 percent in 2008.

Even though the forecasters worried about a slowdown in home building and weakness in business inventories, they said consumer spending would cover any shortfalls. Almost all, or 93.3 percent, said residential investment would contract this year and most thought it would shrink 11.6 percent.

The labor market is expected to remain strong throughout the year, according to the survey, with the jobless rate remaining at 4.6 percent in the first quarter and 4.7 percent in the second.

The outlook for businesses was somewhat strong.

Industrial production is expected to advance by 2.1 percent in the first quarter and by 2.4 percent for all of this year.

Even so, business investment is expected to moderate from earlier years.

The panelists forecast that real investment in business equipment and software would likely rise by 4.8 percent this year and by 5.7 percent in 2008. That compared to average increased of 7.6 percent over the past three years.