/www.bloomberg.com/ By Carlos Torres and Alex Tanzi
The U.S. economy will gather momentum in the second half of 2003 after a sluggish first six months, economists said in a Bloomberg News survey.
``We didn't have a very deep recession, so we shouldn't expect a very strong rebound,'' said Robert Fry, senior associate economist at DuPont Co., whose forecasts were close to the median. The No. 2 U.S. chemical maker's earnings next year are expected to rise 17 percent excluding certain items, according to a survey of analysts by Thomson Corp.'s First Call Corp.
Unemployment may stay at about the current 6 percent rate, and inflation and interest rates will remain low, based on the median forecasts of 66 economists in the survey. Gross domestic product, the total value of all goods and services produced in the U.S., may expand 2.8 percent in 2003, up from this year's projected 2.4 percent growth, according to the survey.
The forecasts reflect the jagged pattern of recovery from the recession that began in 2001. Consumer spending, which accounts for two-third of the economy, has continued to rise while manufacturing and business investment have stagnated. The December Blue Chip Economic Indicators survey of business economists also found a consensus forecast of 2.8 percent for GDP growth in 2003.
Household spending will drive the economy's acceleration from quarter to quarter next year, economists said, as the growth rate rises from 2.5 percent in the first three months to 3 percent in the second, 3.5 percent in the third and 3.7 percent in the fourth. Business investment and factory production would follow along with the rise in consumer spending, economists said.
Rising Consumption to Fuel Investment
``The longer consumption continues to grow, the more likely firms will decide it's a good time to start investing,'' said Henry Willmore, chief U.S. economist at Barclays Capital Inc. in New York, the investment banking arm of the U.K.'s second-biggest bank. Willmore was one of five economists to forecast the economy would grow 3.5 percent or more next year.
One company planning to invest in manufacturing operations is Delphi Corp. The largest maker of auto parts, based in Troy, Michigan, said it will spend $244 million over three years on its Kokomo, Indiana, electronics business as it moves away from less profitable mechanical components like spark plugs.
This month, manufacturing may be picking up. The Federal Reserve Bank of New York's December manufacturing index for New York state rose to 10.6 from November's 9.7. A reading above zero means the number of manufacturers reporting improving conditions was greater than the number reporting deterioration. The New York Fed began publishing the survey in April and has data back to July 2001.
Higher Manufacturing Estimates
After the New York index rose, UBS Warburg LLC and Lehman Brothers Inc. raised their estimates for the Philadelphia Fed's manufacturing index Thursday. The regional Fed bank's survey covers factory activity in the Philadelphia region. Based on the median of 40 forecasts in a Bloomberg News survey, the index will probably decline to 5 from last month's 6.1, still indicating improvement.
Homebuilder optimism also rose this month to the highest in more than two years as mortgage rates held close to generational lows. The National Association of Home Builders' housing market index, a gauge of builder sentiment, increased to 65 in December from 64 in November. The last time the index was this high was November 2000, when it was also 65.
The largest U.S. builder of luxury homes, Toll Brothers Inc., said its contracts to build new homes rose 34 percent in the three months that ended Oct. 31, signaling robust activity next year ``because it takes us nine to 12 months to deliver a home,'' said Fred Cooper, the company's vice president of finance. The company expects sales to rise to $2.6 billion in 2003 from $2.3 billion in the fiscal year ended in October.
`Sub-Par Growth'
The economy is probably expanding at a 1.5 percent annual rate in the quarter that ends this month, the Bloomberg News survey showed. That's down from a 4 percent annual pace in the prior three months. The world's biggest economy grew at an average 4.1 percent from 1997 to 2000. The economy grew 0.3 last year when it fell into recession in March.
``We are looking at a couple more quarters of sub-par growth,'' said Adrienne Warren, a senior economist at Scotia Capital in Toronto, the investment banking arm of the Bank of Nova Scotia, Canada's second-biggest bank by market value. ``We aren't likely to see the growth rates of the late 1990s again.''
Automakers expect to feel the effects of slow acceleration. General Motors Corp. expects the economy to expand 2.5 percent next year, Paul Ballew, the company's executive director of market and industry analysis, said today. The industry's sales of new cars and light trucks next year will probably fall to 16.5 million vehicles from this year's expected 17 million, he said.
Ballew said business investment won't start helping the economy until 2004. ``We're still digesting the overcapacity'' in several manufacturing segments, he said.
Jobless Rate
The expected pace of growth is slow enough to prevent the employment rate from falling much. The jobless rate is projected to peak at an average of 6 percent in the first quarter of 2003, matching an eight-year high reached last month, then drop to an average of 5.6 percent by year end, the survey showed. The average for 2003 is 5.8 percent.
Slow growth and high unemployment will persuade Federal Reserve policy makers to keep rates unchanged for the first six months of the year, according to the survey. Central bankers will hold the target for the benchmark overnight bank lending rate at the current 1.25 percent, the lowest in 41 years, until the third quarter of 2003. The pickup in growth will then prompt them to raise the rate to 2 percent by the end of the year.