" 'There is not a whole lot else that you can point to as being a big problem in the economy,' says David Greenlaw, an economist with Morgan Stanley. Overall, economists put the chances of a recessions at 11% in 2005, rising to 22% by the end of 2006.
The consensus outlook of 56 economists surveyed by the WSJ was that GDP will expand at a rate of about 3.6% in 2005. That pave would be a tad slower than last year's, which was 3.9% through the first nine months of the year. But another year of growth slightly below 4% could be just what the economy needs, many of the economists argue."
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"... some economist expect the trade deficit to begin narrowing, the US might not be the engine for global exports that it has been in recent years. That would mean economies in Europe, in Asia, and in Latin America need to rely more heavily on domestic spending & investment to underpin their own growth."
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"With inflation under control, the economist believe the US Federal Reserve will show restraint in its campaign to raise interest rates. The consensus calls for the federal-funds rate, a key short-term rate controlled by the central bank, to rise to 3% by June & 3.5% by December from its current level of 2.25%. That implies 5 additional interest-rate increases of a quarter point each over the course of the year. Long-term rates, in turn, are expected to follow the short-term rate higher. The economist expected the yield on 10-year Treasury notes to rise to more than 5% by year end, from about 4.2% at the end of December. The consensus forecast calls for the US unemployment rate, which was 5.4% in November, to edge down to 5.1% by the same months in 2005.
The second key assumption of the 2005 outlook is that last year's decline in the value of the dollar has improved the competitive position of American businesses at home & abroad, helping to tame the nation out-of-control trade deficit, which ballooned to more than $500 billion during the first 10 months of 2004.
During the past year, the dollar has fallen 7% against the euro and 5% against the yen. When asked whether the weaken dollar was in the best interest of the US economy, 35 of the 56 economist said 'yes.' "
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"The Journal's panel has its share of bears. Of these, Robert Fry is among the most pessimistic. Mr. Fry, an economist with DuPont Co., expects GDP to grow just 2% during the first half of 2005 & 3% during the second half. He says other forecasters are off the mark because they are underestimating the effect of last year's sharp rise in energy prices. Most economist are impressed with how resilient the economy proved in the face of higher oil prices. But Mr. Fry says oil prices tend to affect the economy with a 12- to 15- month lag. As a result, he thinks growth will be slowing this year, even though oil prices have declined sharply in the past few weeks.
Some other economist harbor nagging worries about the US financial position. In the third quarter of 2004, the US had accumulated a current-account deficit - the broadest measure of trade - equivalent to 5.6% of the GDP, a rate that far exceeds what economist believe is sustainable. At the same time, the federal government has swung from a large budget surplus to deficit. With households & the government spending beyond their means, the US is increasingly relying upon foreign investors - most notably foreign central banks - to finance all of its consumption.
'Our financial system is unstable,' says Dewey Daane, a retired Vanderbilt University economist, who has learned plenty about dealing with unstable financial systems. He served as Federal Reserve during the 1960's & early 70's, a period when the dollar became unhinged from the gold standard and the Bretton Woods agreement that governed the international currency system unwound. Back then, foreign central banks became unwilling to hold US dollars, & Mr. Daane is worried this could happen again, causing new financial turmoil. "
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" [Paul Kasriel, chief economist at Northern Trust in Chicago ] puts the chances of a dollar crash at 25% & the chances of a recession in 2006 at 75%. This puts him out of the consensus. On average the economist say the chances of a dollar crash are closer to 15%, with the odds of a recession by 2006 at 22%."