Will 4th-quarter slowdown hurt 2006?
Report: Forecasters split about economy's fate this year after weak performance late last year.
NEW YORK (CNNMoney.com) - The economy slowed sharply at the end of 2005 but forecasters are split as to whether the slowdown will continue through 2006, according to a report published Tuesday. After growing at an average rate of nearly of 4 percent over the past 10 quarters, the economy hit a rough patch in the fourth quarter as consumer spending and hiring in the retail and construction sectors all cooled in December, the Wall Street Journal reported.
Despite estimates by the publication Blue Chip Economic Indicators, which has forecast economic growth of 3.4 percent for 2006, a small minority of forecasters say that GDP growth in 2006 could fall to its lowest level since 2002. Gross domestic product is the broadest measure of the nation's economy. Research firm ISI Group told the paper that it expects economic growth of about 2.5 percent this year and unemployment to climb to 5.5 percent from last month's 4.9 percent. Some analysts told the paper that the fourth-quarter slowdown was a temporary lapse, pointing at recovering automobile sales, improving oil and gas production and the low number of unemployment claims reported so far in January. But others, including Joseph Carson, an economist quoted by the paper, said that the slowdown is not a passing trend. "The abrupt slowdown in consumer spending at year-end 2005 does suggest that a trend shift is under way," Carson, who works for the New York-based investment dealer Alliance Bernstein, said, according to the paper. Economic experts were also mixed about whether interest rates, higher energy prices or a cooling housing market would derail the economy, the report said. At the same time much attention is being focused on how much longer the Federal Reserve will continue raising short-term interest rates to bring them to a "neutral" level in an effort to keep inflation in check and prevent the economy from overheating, according to the paper. In two previous instances, in 1983-84 and again in 1994, the Fed was able to engineer a series of rate hikes that resulted in slower inflation growth without tipping the economy into a recession, paving the way for two unusually strong expansions, the paper reported. Even if consumer spending slows, exports may help cover the difference the paper reported, and help steady economic growth. And at the same time consumers are increasingly upbeat, according to a recent Gallup poll quoted by the paper. Even though 52 percent of consumers believed that economic conditions were getting worse, and 39 percent said they are improving, a similar November survey showed a larger spread between pessimistic and upbeat consumers. The Commerce Department will publish fourth quarter gross domestic product figures on Jan. 27. __________________ Missed out on the rest of the day's headlines? Click here. |
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