Economists predict increase in consumer spending

(AP) — Consumer spending is likely to pick up this year, while government spending declines at a faster rate, according to a survey of business economists.

The economists predict that the U.S. economy will grow 2.4 percent this year and 3 percent next year. That's unchanged from their forecast in February.

But they are more bullish on consumer spending and housing than they were three months ago, in part because of a more positive view about unemployment.

The survey was released Monday by the National Association for Business Economics, which periodically surveys economists for banks, manufacturers and universities.

The 49 economists who were questioned between April 16 and April 30 predicted that consumer spending will rise 2.3 percent this year, up from a forecast of 1.9 percent in February. They were also more upbeat about auto sales, predicting 15.4 million vehicles sales, an increase of 1 million over 2012.

Nayantara Hensel, chair of the NABE survey and a business professor at National Defense University, said consumer spending will get a boost from gains in the stock market, home values and lower unemployment.

"Home prices are going up, and with also the improvement in the unemployment rate, people will be more willing to buy," Hensel said in an interview.

The economists predicted that home prices will rise 4.4 percent this year and 4 percent next year. Boosted by new construction, they predict a 15 percent jump in residential housing investment this year.

Housing starts hit a 5-year peak in March then fell in April, with most of the decline due to less apartment construction, which can swing wildly from month to month.

Applications for building permits hit a 5-year high in April, suggesting that the housing market will continue to recover from the recession. A recent survey by the National Association of Home Builders found continued optimism among builders.

The NABE economists, who were surveyed before April unemployment was reported at 7.5 percent, predicted that the rate will decline to 7.4 percent in the fourth quarter and 6.8 percent in late 2014.

Corporate profits after taxes are expected to rise 5.3 percent in 2013 and 7.5 percent next year. Both of those are more bullish forecasts than the economists offered in February.

While consumers might spend more, the government sector is expected to shrink 2.3 percent this year — sharper than the 1 percent cut that the economists predicted in February, before a series of automatic federal spending cuts kicked in when Congress and the White House failed to reach a deal to avoid them. The economists expect government spending to decline a more modest 0.9 percent in 2014, but Hensel said the forecast could change to a bigger decline if it looks like the automatic cuts will continue into the next fiscal year.

Lower government spending, especially by the military, "has already had a sharp effect on GDP growth," she said. GDP, or gross domestic product, is the measure of the economy's total output of goods and services.

The NABE survey found little alarm about potential inflation. The economists expect the Consumer Price Index to rise 1.9 percent this year and 2.1 percent in 2014.

On Friday, the Conference Board reported that its index of leading economic indicators rose in April after dipping in March. A board economist said the economy was getting a lift from steady job gains and the housing market, offsetting government spending cuts.

Associated Press

Authors: provided on tsx today section of eStockMarkets

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