Expect more "soft patch."
That’s the conclusion of economists surveyed by WSJ.com.
56 private economists have sliced their expectations for 2Q GDP by 50 basis points. Consensus forecast is for growth of 3.2% annual rate — down from the 3.7% forecast last month.
While some have argued that 3.2% is respectaable, it reflects a cooling of the economy on both sequential and quarterly year-over-year basis. GDP slowed to 3.1% in Q1, compared with 4.4% growth in 2004. Some economists blamed energy, which certainly has had its effect — but as we’ve addressed before, fading stimulus is also to blame.
In my opinion, true stagflation is far less likely than many feared. What we are enduring is a form of "demi-stagflation" — anemic growth and robust inflation. Not like the crazy numbers of the 1970s — we wont see 7% inflation and 1% GDP anytime soon. Just growth a little bit too soft, and inflation a little bit too robust.
Problem is, that’s hardly the ideal environment for equities.
Among other findings in the survey:
• Economists have turned slightly more bullish on corporate profits. On average, economists predict profits will rise 10.6% in 2005 and 5.8% in 2006. In a survey published at the end of 2004, they had predicted profits would rise 8.4% and 5.4% in 2005 and 2006, respectively.
• Despite a healthy gain of 274,000 payroll jobs in April, expectations for hiring over the next year were flat; economists see average monthly growth in nonfarm payrolls of around 189,000 jobs. They predict the unemployment rate will be 5.2% in May (matching the rate reported by the government for April) and 5.1% in November; those forecasts have been unchanged since February.
From the same online WSJ article:
Monthly Economic Forecasting Survey: May 2005
click for larger graphic
Chart courtesy of WSJ
Economists Scale Back Forecasts for Growth
The Slowdown Will Continue This Quarter Before a Late-Year Rebound, Survey Finds
By Tim Annett
The Wall Street Journal Online, May 12, 2005 3:41 p.m.