ABA Economists Predict Slow Growth Through 2008, But Rebound in 2009

The American Bankers Association Tuesday released the results of a consensus-building economic exercise among a panel of economic advisors. Slow growth for the remainder of the year, and into the first quarter of 2009, was predicted by nearly all of the advisors.

The ABA’s Economic Advisory Committee (EAC), comprised of 10 chief economists from major U.S. banks, predicted that for all of 2008, real economic growth would total 1 percent. The economy grew at a 0.9 percent annual rate in the first quarter of 2008, according to the Department of Commerce (“First Quarter Economic Growth Revised Up to 0.9 Percent,” May 29).

Economists on the panel predicted average growth in the second quarter of 1 percent, with the third and fourth quarters roughly the same. The panel said that annualized growth above 2 percent would return in the second quarter of 2009.

“Although the tax rebates are providing some near-term lift to spending, households will continue to face a multiplicity of negative forces, including energy and food prices, restrained credit conditions and declining home prices,” said Peter Hooper, chair of the committee and chief economist, Deutsche Bank Securities, New York.  “The economy is not likely to grow fast enough to absorb the growth of the labor force over the next twelve months,” he said in a press release.

Since the economy will not keep up with the labor force, the panel predicted that the unemployment rate would rise to 5.75 percent by the end of the year, peaking at 5.8 percent in the first few months of 2009. The Labor Department shocked many economists and analysts recently when it said that the unemployment rate had reached 5.5 percent in May (“Economic News Shows People Losing Homes and Jobs in Record Numbers,” June 6).

The EAC also suggested that although the economic growth picture looks sluggish over the year ahead, the Federal Reserve will be especially attentive to inflation risks.  “The Fed has some very tough decisions ahead, given the intensification of conflicting pressures between a lagging economy and oil-driven inflation,” said Hooper. 

The panel generally believes that the Fed is likely to begin raising the federal funds target rate early in 2009.  However, with core PCE inflation lingering above the Fed’s comfort zone of 1.0 – 2.0 percent, and with headline inflation even higher, some members of the EAC expect the Fed to raise rates this year.

Members of the ABA’s EAC are:

• EAC Chair Peter Hooper, chief economist, Deutsche Bank Securities, New York
• Scott A. Anderson, VP and senior economist, Wells Fargo Bank, NA, Minneapolis 
• John Bitner, SVP and chief economist, Eastern Bank, Boston 
• Stuart Hoffman, chief economist, PNC Financial Services Group, Pittsburgh
• Dana Johnson, chief economist, Comerica Bank, Dallas
• Bruce Kasman, chief economist, JP Morgan Chase, New York 
• Paul L. Kasriel, SVP and director of economic research, Northern Trust Company, Chicago
• Gregory Miller, VP and chief economist, SunTrust Bank, Inc., Atlanta
• George Mokrzan, VP and senior economist, Huntington Bancorp, Columbus, Ohio
• Lynn Reaser, chief economist, Investment Strategies Group, Bank of America, Boston