Politics & Economics: Economists Cut GDP Outlook As Oil Prices Remain a Concern
The Federal Reserve cited moderating growth when it paused in its rate-increase campaign this week, and concerns about the economic outlook seem to be growing among economists.</br></br>This month's WSJ.com economic-forecasting survey showed projections for gross domestic product and employment growth were cut, while forecasts for consumer prices and oil prices were lifted. Economists continued to nudge higher their estimates of the probability of a recession over the next 12 months; on average, they put the likelihood at 26%, up from 20% in June and 15% in February.</br></br>Economists, on average, forecast GDP growth at a 2.8% annual rate for the third quarter, the first time their forecast for that quarter has been under 3% since the economic-forecasting survey first asked about the period in November 2005. While their forecast is slightly above the 2.5% real GDP growth recorded in the second quarter, it is well below the 5.6% growth in the first quarter and average annual growth rate of 3.2% from 2003 to 2005. The economists forecast growth slowing to a 2.6% rate in the fourth quarter, and staying at that rate for the first half of 2007. GDP is the broadest measure of economic output.</br></br>"The economy has definitely slowed below trend," said Ethan Harris at Lehman Brothers. "Second-quarter GDP is soft, employment numbers are coming in soft and the housing market is finally softening."</br></br>Oil prices remained at the forefront of concerns, as 43% of economists -- 20 of the 46 who answered the question -- indicated higher costs presented the biggest risk to their GDP outlook. At the same time, the average year-end forecast for crude-oil prices was lifted to $69.50 a barrel. That is up by more than $4 since the last survey, conducted in June, but below the recent level of oil prices, which have traded in the mid-$70s this week. The economists expect prices to drop to $65.25 by next June.