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U.S. economy to lose some steam in early 2012: poll
January 19, 2012 / 7:21 PM / in 6 years

U.S. economy to lose some steam in early 2012: poll

NEW YORK (Reuters) - The U.S. economy is expected to lose some momentum in the first months of 2012 despite a raft of better data, leaving economists split on whether the central bank will step in with more fuel for the recovery, a Reuters poll showed on Thursday.

While respondents in the poll of over 70 economists, taken over the past week, raised their forecasts for first-quarter growth, they don’t expect it to sustain 3 percent rate anticipated for the final months of 2011.

Consumers are seen taking a more frugal tack at the start of the year after recently dipping into their savings to spend, while the burning credit crisis in the euro zone remains the biggest risk to the U.S. and global economies.

Once a major pillar of the economy, consumer spending has been tepid since the financial crisis that left many Americans saddled with huge debt loads and some with negative equity as house prices plunged by a third after a spectacular rise.

“In the fourth quarter, consumers were using their savings to fund spending and of course that can’t go on indefinitely,” said Sam Bullard, senior economist at Wells Fargo.

“(For) consumers there’s still a lot of risks and challenges to the outlook. Unemployment is still very high, real income growth is definitely flat, so they’re not seeing a lot of increased ability to spend.”

Even so, the chances of the economy backtracking into recession this year eased further, with the odds falling to 20 percent from 25 percent last month.

Fourth-quarter gross domestic product was seen growing at a median 3.0 percent annualized rate before slowing down to 2.0 percent in the first quarter.

Those forecasts were up from 2.9 percent and 1.8 percent predicted in December’s poll. The annual average for 2012 was nudged up to 2.2 percent from 2.1 percent.

The sluggish pace of growth will give little relief to U.S. President Barack Obama, who is up for reelection this year, but it is far better than last year’s heightened fears the economy was heading for another recession.

Economists are also expecting policymakers to extend the payroll tax holiday through the end of the year after a two-month extension was agreed to in late 2011, though there is still a risk that political gridlock could derail it.

“The consensus view is that, this being an election year, they’re going to get this done and they’re going to do it in a 10-month swath,” said Scott Brown, chief economist at Raymond James.

Some economists have cautioned that over-zealous spending cuts could choke the fragile recovery.


Economists were divided on whether the Federal Reserve will launch a third round of quantitative easing this year, known as “QE3.” Twenty-eight of 55 respondents said the Fed would start another round of asset buying, and put the median amount of purchases at $500 billion.

The Fed has bought more than $2 trillion in government and mortgage-related bonds in order to keep borrowing costs low, with the most recent program wrapping up last summer.

The central bank is meeting at the end of January and is expected to give more information on the path of interest rates, but is not seen announcing more bond purchases.

Inflation is expected to remain tame, giving the Fed plenty of wiggle room to keep interest rates near ultra-low levels. Economists lowered their forecasts for the fourth quarter to 3.3 percent from 3.4 percent, while the first quarter is seen at 2.5 percent, down from earlier expectations of 2.6 percent.

Unemployment is expected to see modest improvement this year, though it will still be uncomfortably high. For 2012, the unemployment rate is seen averaging 8.5 percent, down from economists’ earlier expectations of 8.9 percent.

The unemployment rate is unlikely to come down steadily as positive economic news encourages people back into the work force, which can lift the unemployment rate, Bullard said.

Additional polling by Deepti Govind and Namrata Anchan; Editing by Catherine Evans

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