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U.S. Recovery Strengthens, Economists Say

The U.S. recovery that began last year will be stronger than previously estimated, according to a survey by the National Association for Business Economics.

The world’s largest economy will expand 3.2 percent this year and next, according to the poll taken from April 27 to May 7. In February, the group projected growth of 3.1 percent for 2010 and 2011. Economists surveyed also boosted their projections for payrolls and consumer spending this year.

The outlook brightened even as concern over the European debt crisis mounted. Barely less than half, 49 percent, of those polled said Greece will default, either within a year or after some short-term maneuvering bought the country extra time. The survey was conducted before European policy makers announced a $1 trillion loan package to support debt-laden governments.

“Although risks involving Europe have recently escalated, the outlook in this country has improved in most respects,” NABE President Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego, California, said in a statement.

“Growth prospects are stronger, unemployment and inflation are lower, and worries related to consumer retrenchment and domestic financial headwinds have diminished,” Reaser said.

The rebound from the worst recession since the 1930s started in June 2009, the survey showed. The panel responsible for deciding when U.S. recessions begin and end said last month it was too soon to declare the slump that began in December 2007 over.

Declaration ‘Premature’

“Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature,” the Business Cycle Dating Committee of the National Bureau of Economic Research said in an April 12 statement.

Consumer spending adjusted for inflation will expand 2.6 percent, up from 2.2 percent projected in February.

The results mirrored those of a Bloomberg News survey of economists taken earlier this month.

Part of the reason for the increased spending expectations is a projection that Americans will save less. Economists surveyed by NABE estimated the savings rate will average 3.4 percent this year, down from the 4.6 percent projected three months ago.

Gains in business investment will be another boost to the economy. Inventory restocking after a record drawdown in 2009 will last over the next two years, and higher earnings will propel spending on equipment and software, the economists said.

Profit Recovery

Corporate profits will rise by 20 percent in 2010 and 7 percent next year, according to the survey. Payrolls will climb by 120,000 a month on average in 2010.

Even with the job gains, the unemployment rate will remain elevated, averaging 9.6 percent this year. The level consistent with full employment is now probably around 5.5 percent, up from a prior estimate of 5 percent, the survey showed.

Finally, economists pushed back their forecast for the Federal Reserve’s first increase in its benchmark interest rate to the fourth quarter of this year, citing reduced inflation expectations. The federal funds rate to be 0.5 percent by year- end, down from the 0.75 percent projected in February.