New York, NY, Sept. 12--The U.S. economy is expected to record its strongest pace of growth during the second half of 2003 since the late 1990s.
The nation's gross domestic product--the broadest measure of the output of goods and services--is expected to grow at a seasonally adjusted annual rate of 4.7% during the third quarter and 4.0% in the fourth quarter, according to a monthly survey of 53 economic forecasters conducted by WSJ.com.
The projected quarterly growth rates for the second half of the year mark a sharp upward revision from August estimates of 3.6% and 3.8%, respectively. If the forecasters are correct, the growth rates taken together would be the fastest since the economy expanded at an annual pace of more than 6% in the second half of 1999.
Economists have projected turning points in the past that haven't materialized and any forecast needs to be viewed with caution. Still, economists say there is mounting evidence that consumer and business spending has accelerated. New car and light-truck sales totaled 1,631,755 vehicles for August, an annualized selling rate of 19 million vehicles, the strongest sales pace in two years. Wal-Mart beat its own sales estimate for the month and back-to-school sales were generally considered robust. Meanwhile, manufacturers' orders for durable goods are on the rise and recent reports suggest the manufacturing sector is increasing output again.
"It has all of the earmarks of a major turning point," says Allen Sinai, chief economist at Decision Economics Inc., a forecasting firm.
The economic acceleration appears to have begun in the second quarter. The Commerce Department said late last month that the economy grew at a 3.1% rate, helped in part by a jump in defense spending.
One important factor in the unusually large upward revisions could have been the effect of President Bush's tax-cut package enacted by Congress in the spring. Economists weren't sure how aggressively consumers would spend the cash they received from rebate checks and the lower tax withholding rates which kicked in during the summer.
Now, "it seems that we've gotten more sustained spending out of tax cuts than I had expected," said John Silvia, chief economist at Wachovia Corp., in explaining his forecast. He raised his third-quarter growth estimate to 5.5% from a projection of 3.4% in August.
Other factors appear to be at play in the growth surprise, including stronger-than-expected corporate-profit increases, the lingering benefits of a spring-time mortgage-refinancing boom and relief from the end of major fighting in Iraq.
After the initial burst of growth this year, forecasters believe the pace of activity will slow to a more sustainable rate of 3.85% in the first half of 2004.
Yet several important risks to the outlook remain, and still could jeopardize the sustainability of the expansion. First on the radar screen of most economists is the job market. Despite the pickup in economic growth, there are few signs that the increasing demand for goods and services has induced companies to start adding workers again.
This point was underscored in a Labor Department report Thursday, which showed that the number of people filing first-time claims for unemployment benefits rose in the week ended Sept. 6 to 422,000, from an upwardly revised 419,000 the week before. Economists generally believe a figure below 400,000 implies a stable-to-improving job market. But claims have now risen for three straight weeks after dipping below 400,000 earlier in July and August.
Nearly half of those economists surveyed said a lack of job creation posed the biggest threat to the nascent expansion. Yet most economists now expect payrolls to start rising by the end of the year. Thirty-seven of the 53 surveyed expected payrolls to expand by 1 million or more over the 12-month period.
