February 26, 2007 / 5:05 AM / 13 years ago

U.S. economy moving to "sustainable growth": NABE

WASHINGTON (Reuters) - The U.S. economy appears to be getting on a sustainable growth path with GDP expected to grow 2.8 percent in 2007, and the risks of inflation are slightly higher than those of an economic slowdown, according to a survey of economists released on Monday.

Economists surveyed for the National Association for Business Economics forecast predicted that warm weather conditions that boosted economic activity late last year would not cut into growth in 2007.

While the group said it believes the Federal Reserve will keep the benchmark federal funds rate unchanged at 5.25 percent, the panel of economists said they see a pickup of inflation as a slightly larger macroeconomic risk than a slowdown in growth.

“While temperatures abruptly returned to seasonal norms, the NABE forecast panel sees very limited economic ‘payback’ for the strength we recorded in December,” NABE President Carl Tannenbaum said.

The panel held that a weakened housing market would be the biggest dampening force on growth this year.

On the jobs front, the panel forecast moderate job growth this year.

“The unemployment rate is forecast to average 4.7 percent this year, a tad higher than January’s 4.6 percent level, but also similar to the Federal Reserve’s current outlook,” the group wrote.

Productivity, or worker output per hour, this year is expected to advance 2.0 percent in 2007, partially offsetting increases in labor compensation and unit labor costs.

Inflation is expected to stabilize somewhat during the year. Lower energy prices, the panel forecast, would bring overall inflation down to less than 2.0 percent during the year — the lowest in five years.

But core inflation, which strips out volatile food and energy prices, is expected to hold steady at 2.3 percent over the course of the year, with that rate persisting through 2008.

While the group expects the Fed to keep interest rates on hold throughout 2007, they do expect the central bank to carry out a slight rate cut in 2008 to 5 percent.

Real personal consumption expenditures are expected to advance 3.2 percent in 2007, up from a previous forecast of 2.8 percent. But profit growth will moderate to a pace more in line with overall economic activity.

“After soaring by an estimated 19 percent last year, after-tax profits are projected to expand only a modest 5 percent in 2007,” NABE wrote.

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