New York, NY, Oct. 9--Surprising resilience in consumer spending prompted economists to again raise their forecasts for growth in the third quarter. But they cautioned that the economy isn't at the start of a catch-fire recovery and said meaningful improvement in the jobs market is still too far off to call, according to Wall Street Journal Online.
"I'd say that we are at the very beginning stage of a recovery, and we're going to be at the beginning for a while," said Maria Fiorini Ramirez, chief executive of the New York economic-consulting firm bearing her name.
The average forecast of the 53 economists who participated in The Wall Street Journal Online's economic-forecasting survey this month put growth for the third quarter at an inflation-adjusted annualized rate of 5%, up from the 4.7% rate they predicted in a September survey and from 3.6% in August. But while economists have been walking third-quarter expectations higher, they have largely left unchanged forecasts that growth will moderate in the current quarter and the first half of 2004.
For early next year, they put growth in gross domestic product, the broadest measure of output in the economy, at just under a 4% rate. That is still considerably stronger than what was seen early this year. Second-quarter growth was at a 3.3% rate, while first-quarter growth was at a 1.4% rate.
Many economists attributed the strength in consumer spending to the latest federal-tax reductions. Some economists said they were caught off-guard by the extent of the stimulus created by the cuts, which included rebate checks for some families of as much as $400 per child. Consumer spending rose a strong 0.8% in August from July, after a 0.9% advance the previous month. September data aren't yet available, but if the rate continued--and economists have their doubts, given a slowdown in auto sales last month--that could mean quarterly spending growth not seen in more than 15 years.
But while consumer spending accounts for a significant chunk of all economic activity, businesses remain a major focus of recovery-watchers. The slow-but-encouraging expansion in manufacturing activity that cheered economists in the summer has since eased, and businesses remain cautious about making significant investments in equipment--and people--without solid signs that the recovery is under way. Moreover, many businesses are concerned because they are unable to lift the prices they charge.
Economists expect job growth to remain a roadblock to meaningful economic expansion for some time. "We're well on the road to recovery, but that doesn't mean employment recovery. It's going to be a while before we return to the employment levels we had a couple years ago," said David Resler, a forecaster with Nomura Securities International Inc.
Economists surveyed see unemployment rates of 6.1% in November, matching the current rate, and 5.9% in May 2004. Both forecasts are unchanged from the previous survey.
Nearly two-thirds of those surveyed said job growth is being restrained by the remarkable gains in worker productivity, generated in large part by technological advancements that allow businesses to do more with fewer people. Economists also cited the migration of jobs overseas and rising health-care costs.
"The costs of having a full-time employee are extremely high when it comes to benefits, insurance, and all the other things that get added on," Ms. Ramirez said. "The last thing companies are going to do is hire full-time workers."
Employers--particularly manufacturers--also remain unconvinced that the economy is firmly on the road to recovery. Recent reports showed manufacturing activity slowed slightly in September, and manufacturers continued to eliminate jobs, though at a slower pace than during prior months.
