The U.S. Economy Will Remain Solid During the First Half of 1999
15 April 1999
Economics Illustrated Reports the U.S. Economy Will Remain Solid During the First Half of 1999, But the Picture is Uncertain for the Rest of the Year
CHARLOTTE, N.C.--April 15, 1999--U.S. economic growth is expected to remain solid, inflation will stay in check, consumer sentiment will remain healthy, and the Federal Reserve will keep its interest rate policy steady during the first half of 1999, according to the consensus views of a panel of 17 leading Wall Street economists appearing in the April issue of Economics Illustrated.This is the 100th edition of the monthly publication under the editorship of Drew Brahos, senior economist at TradeStreet Investment Associates, Inc. TradeStreet, a registered investment adviser and Bank of America company, currently manages more than $78 billion in assets for institutional investors across a broad spectrum of equity, fixed income, and money market products.
1999 Economic Forecast
"In the first quarter of 1999, our panel is predicting that real gross domestic product (GDP) will grow at an average rate of 3.7 percent, up from an estimate in last month's survey of 3.2 percent," says Brahos. During the second quarter, GDP is expected to trend downward somewhat to an average rate of 2.7 percent, which is up slightly from the panel's March prediction of 2.6 percent.
Consumer fundamentals are expected to remain strong throughout 1999, notes Brahos. The unemployment rate will average 4.3 percent for the year, and despite the consensus forecast of continued tight labor markets this year, the panel is predicting that inflation will remain in check.
Inflation, as measured by the consumer price index (CPI), is expected to average 1.9 percent in 1999, up from the 1.6 percent rate in 1998. Real disposable personal income is expected to increase by 3.4 percent in 1999, up from a 3.2 percent increase in 1998.
Housing starts are expected to average 1.61 million units in 1999, up slightly from an estimate of 1.60 million units in last month's survey. In addition, consensus estimates for corporate profits were also higher than in last month's survey. For all of 1999, pre-tax corporate profits are expected to grow by 4.1 percent, compared to last month's prediction of just 2.2 percent.
A majority of the panel continues to believe that the Federal Reserve will keep interest rate policy steady through the first half of 1999, with some debate about Fed policy for late 1999. The yield on three-month Treasury bills is expected to average 4.5 percent in 1999, up 10 basis points from last month's survey. The yield on the 30-year Treasury bond is expected to average 5.30 percent for the year, unchanged from last month's survey.
"The value of Economics Illustrated since its inception is that it has consistently predicted the twists and turns in the U.S. economy, what I like to call the whispers of change," says Brahos. "We have again reached that 'fork in the road' where there is disagreement among the panelists about whether economic growth will slow in the second half of 1999," Brahos points out.
"At this juncture, the panel of economists sees a number of upside and downside risks to the consensus economic outlook of moderate growth and low inflation in 1999," notes Brahos. On the downside, some panelists believe that a pickup in economic activity in the rest of the world may take longer than expected. At the same time, some of the panelists see the broader trade deficit as a further drag on U.S. economic growth. During 1999, the trade deficit is expected to reach $293.2 billion.
The factor most frequently cited as an upside risk to the forecast for 1999 is the threat of even stronger growth in the United States, with a pickup in inflation. "At this point, there are few signs that the domestic economy has slowed enough to alleviate such concerns," says Brahos.
YEAR 2000 ECONOMIC OVERVIEW
Real GDP is expected to average 2.2 percent in 2000, up from an estimate of 2.1 percent real growth last month. CPI inflation is expected to average 2.1 percent for the year, also up slightly from last month's estimate. Capital spending, investment in plant and equipment, and housing starts in 2000 are expected to slow from levels predicted for 1999. During 2000, capital spending is expected to grow by 4.6 percent next year compared to 6.9 percent in 1999. Next year, the panel says housing starts will average 1.50 million units compared to 1.61 million units in 1999.
The unemployment rate is expected to average 4.6 percent in 2000, down from an estimate of 4.7 percent in last month's survey. The panel is more optimistic about the corporate profits picture in 2000 than they were in last month's survey. Next year, corporate profits will grow by 2.9 percent, compared to last month's estimate when the panel was forecasting a decline of almost 1 percent in 2000. The trade deficit is expected to exceed $322 billion, only a slight revision from last month's estimate of $329 billion.
Economics Illustrated is published monthly by TradeStreet Investment Associates, Inc., a registered investment adviser specializing in separately managed equity, fixed income and cash portfolios. TradeStreet currently manages more than $78 billion in assets for over 200 institutional clients, including corporations, public entities, jointly trusteed plans, endowments, and foundations. A Bank of America company, TradeStreet is headquartered in Charlotte, N.C., with offices in Atlanta, Chicago, Los Angeles and St. Louis.
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