U.S. Economic Outook for 2006

Here are some key points from the National Association for Business Economics new U.S. economic outlook.

Despite turbulence from hurricanes and high energy prices, the economy is expected to log respectable growth in 2005 and 2006, a panel of 45 business economists said in a recent survey. The economy, as measured by GDP, is projected to grow by 3.6 percent in 2005 and 3.3 percent in 2006, according to the National Association for Business Economics.

NABE’s projections mark a moderation in growth from 2004 but still represent a decent performance, economists said. In 2004, the U.S. economy grew by 4.2 percent, the best showing in five years.

Against this backdrop of the economy’s resiliency, the Federal Reserve is likely to raise short-term interest rates at least one more time in 2006 to keep a lid on inflation. The Fed has boosted interest rates 13 times since June 2004 to bring rates from 1 percent back to 4.25 percent, the highest in more than four years.
The NABE panel forecast the U.S. trade deficit at $769 billion in 2006, reflecting higher oil prices, and the federal deficit at $376 billion, reflecting in part increased federal spending for reconstruction in the states devastated by the Gulf Coast hurricanes.

The U.S. consumer price index is expected to advance by 3.8 percent in 2005. For 2006, the panel sees all-items CPI inflation of 2.3 percent, held down by moderating energy prices. The core CPI — excluding food and energy prices — is projected to increase by 2.1 percent in 2005 and 2.4 percent in 2006.