Nov. 4 (Bloomberg) -- Economists at companies including Lehman Brothers Inc., Cantor Fitzgerald LP and Bank of Tokyo- Mitsubishi Ltd. are more optimistic about the U.S. economy than a month ago, a monthly Bloomberg News survey shows. Gross domestic product will expand at a 4 percent annual rate from October through December, based on the median forecast of 54 economists surveyed by Bloomberg News from Oct. 24 to Nov. 3. The forecast was 3.8 percent a month ago. The economy grew at a 7.2 percent annual rate last quarter, the fastest in almost two decades, the Commerce Department said Thursday. Consumer spending accelerated, helping draw down inventories, and business investment rose more than 11 percent. ``To meet this unexpected surge in demand, we will see business start to build inventories again for the first time in a year,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi, in New York. Bank of Tokyo economists raised their fourth-quarter GDP forecast to 4 percent from 3.5 percent after the third-quarter growth report.
Lehman Senior U.S. Economist Joseph Abate said his company is estimating 4 percent growth in the current quarter, up from a 3.5 percent forecast a month ago. ``The breadth of the recovery is beginning to pick up,'' said John Herrmann, chief U.S. economist at Cantor Fitzgerald in New York, who raised his fourth-quarter forecast to 4.6 percent from 3.8 percent. The economy is forecast to grow 4 percent in the first quarter as well, according to the survey. Economists expected growth of 3.8 percent last month.
Profit Recovery
The higher forecasts come after U.S. corporations posted their biggest quarterly profit gains in more than three years. Earnings grew an average of 21 percent in the third quarter for the 408 companies in the Standard & Poor's 500 Index that had reported earnings through yesterday. ``I think we're going to see an upturn next year,'' Donald Peterson, chief executive officer of telephone-equipment maker Avaya Inc., said yesterday at a New York seminar organized by the Atlantic Monthly. In its July update of economic assumptions, the White House Office of Management and Budget said the Bush administration expected inflation-adjusted growth of 2.3 percent for all of 2003 and 3.7 percent for next year.
`Big Numbers'
The 4 percent growth forecast in the Bloomberg survey would exceed the 3.6 percent annual average during the record expansion from 1991 through 2001. Treasury Secretary John Snow told the Times of London last month he expects the economy will grow at about a 4 percent rate during the next year, a level that may produce the 200,000 jobs a month seen in some private forecasts. Snow ``has projected some pretty big numbers here, hiring that will take place next year -- and it probably will,'' said J.T. Battenberg, chairman and CEO of Troy, Michigan-based Delphi Corp., the world's largest auto-parts maker, in an interview. ``Will it be as large as hiring we had after the (1991) recession?'' he asked. ``I kind of doubt it, because people are more productive now.'' The nation's unemployment rate may hold at 6.1 percent in the current quarter, before falling to 6 percent in the first quarter and 5.9 percent by the end of the second quarter, the survey showed. A Labor Department report Friday may show the jobless rate in October was 6.1 percent, the same as September, and that the economy added 60,000 jobs, based on the median of 62 forecasts. The report is set for 8:30 a.m. in Washington.
Rates
The consumer price index, the government's broadest measure of inflation, will rise at a 2.1 annual percent rate in the final three months of the year and 1.7 percent in the first quarter of 2004, according to the median forecast in the survey. Those forecasts are higher than the 2 percent and 1.6 percent in the survey a month ago. The personal consumption expenditures price index, an inflation measure watched by Federal Reserve policy makers, will rise at a 2.9 percent annual pace in the fourth quarter and increase to a 3.5 percent clip in the first quarter, the economists predicted. The index rose at a 2.4 percent annual rate in the third quarter. The Fed's policy-setting Open Market Committee will probably leave the benchmark interest rate at 1 percent for the rest of this year, the lowest since 1958, and through the second quarter before raising the rate to 1.5 percent in the third, according to the survey. The economics behind the Fed's strategy have not changed much despite the surge in third-quarter growth, said Neal Soss, chief economist at Credit Suisse First Boston Corp. in New York. ``That spurt leaned heavily on tax cuts, whose effects are apt to fade,'' Soss said. ``The support from mortgage refinancing should also diminish. Meanwhile, disinflation is very much alive, which means the Fed wants growth to be above its long-term trend.'' The yield on the 10-year U.S. Treasury note will rise to 4.4 percent in the current quarter, then increase to 5.1 percent by the end of next year, economists in the survey said. Economists were polled Sept. 26 to Oct. 3 for the previous monthly survey. //www.bloomberg.com