The Conference Board continued its series of upward revisions in its most recent update of its global and U.S. economic forecasts. Key points from their update follow:
• The global economy is projected to grow 4.3% this year. This rate reflects a slight uptick supported by increasing momentum in the U.S. and other major economies. The outlook for Japan is for slower growth, as a result of their triple disaster. While these tragedies will have long-term impacts, the affect on their economy will be short-lived. The Chinese economy remains strong, but previous projections appear to have been overstated, hence a slight downward revision.
• Real Q1 GDP for the U.S. is projected to be 2.1%, driven down by lower capital spending and slower consumption. Output will increase by 2.5 to 3.0% for the remainder of the year, as employment increases and stronger consumption resumes. This will push Real GDP growth for 2011 to 2.6%. While this projection is particularly conservative, it is worth noting that the Conference Board has gradually bumped it upwards, by about a point, over the past six months. It is safe to say that we are now looking at the Great Recession in our rear view mirror.
• Headline inflation will surpass 5% in Q1, temporarily driven up by energy and food costs. Year-end CPI will be just under 3.0%.
• There are signs that producers are beginning to pass on price increases to consumers. It is not known whether these higher prices will hold.
• Companies will continue to benefit from productivity gains, as opposed to investing in labor. For the moment, this is good news for companies and bad news for workers. This relationship between labor and capital is likely to change in the months ahead.
• Sales growth is the top challenge for business leaders; followed by finding talent, cost optimization, and innovation.
• The triple disaster in Japan is likely to have a minimal and temporary impact on the U.S. economy. These tragic event may cause supply chain disruptions to the automobile industry, electronic equipment, or manufacturing industries that rely on semiconductors. The magnitude of the impact is based on exposure and location.
The Conference Board highlighted three assumptions that provide the foundation for sustained growth in the U.S.
• Continued gains in U.S. employment of 200,000+ workers per month.
• The housing market is currently experiencing a double-dip “of sorts”. No further contractions will occur beyond current levels.
• Inflation will be contained.
If employment decreases, the housing market dips further or remains in the doldrums, or inflation is unchecked then all bets are off regarding the recovery.
This forecast update is particularly good news, as the Conference Board has been notably conservative in their assessment of the strength of the recovery. While there are certainly risks associated with this forecast, it is encouraging to finally hear that the word momentum is being used in discussions about the national economy.
©Copyright 2011 by CBER.