By Vicki Needham - 09/09/13 03:06 PM EDT
Even though expectations were lowered slightly for each quarter in this report, the expansion should march onward a gradual pace — 2.3 percent for the July-September quarter, 2.6 percent in the fourth quarter, 2.8 percent in the first quarter of 2014 and 3 percent for the rest of 2014.
The last time the economy grew more than 3 percent over a year, on average, was in 2005.
Since the survey was conducted, the Commerce Department reported on Aug. 29 that growth was sharply higher than expected to 2.5 percent for the second quarter, up from the initial estimate of 1.7 percent.
About 46 percent of the panelists believe that this year’s cuts in federal spending will reduce fourth quarter quarter growth by half a percentage point or less.
Meanwhile, inflation is expected to remain tempered and the labor market should show continued improvement.
The unemployment rate is expected to drop to 7 percent next year from 7.5 percent this year — the latest jobs report released on Friday showed that the jobless rate had dropped to 7.3 percent but was boosted because workers dropped out of the labor market.
As the jobless rate drops, the economy is expected to add about 199,000 jobs a month next year with this year winding up around 189,000 a month, up from the 168,000 in the last survey.
By the end of next year, the unemployment rate is expected to finally fall below 7 percent to 6.8.
On another front, the economists said that there is an 80 percent likelihood that the Federal Reserve will reduce its $85 billion in monthly asset purchases of mortgage bonds and Treasury bills next year.
There is also a 45 percent chance that the Fed will reduce those purchases this year.
Many economists expect the central bank to begin that tapering at their meeting later this month, despite a disappointing August jobs report, with the aim of ending monetary stimulus sometime next summer, as long as economic conditions warrant the reductions in purchases.
The report showed, though, that economists think there is a 19 percent chance that the purchases will not be reduced.
In the meantime, Treasury yields are likely to rise — they fell on Friday after the jobs report.
By the second quarter of next year, yields will run about 3 percent and could hit 3.29 by the end of 2014.
Consumer spending will help boost economic growth.
Economists expect spending to continue growing slowly in 2013 to about 2 percent, down from the 2.3 percent in the May forecast, before expanding to 2.6 percent by 2014, unchanged from the last estimate.
The panelists are predicting that the consumer price index will rise just 1.3 percent this year and 1.7 percent in 2014, minus food and energy prices.
Oil prices are expected to average $100 for December 2013 and 2014.
The panelists estimate that residential investment and housing starts will continue to grow, although home prices, which they estimate will continue to rise in 2013, may grow more slowly in 2014.
Home prices are likely to grow 6 percent in 2013, which is an upward revision from the May survey, when panelists suggested a 4.4 percent increase. They suggest that home prices will grow at 4.8p percent in 2014, which is an increase from their 4 percent estimate for 2014 in the last survey.
Nevertheless, the slower growth in house prices in 2014 relative to 2013 suggest that the possibility of higher mortgage rates may reduce the growth in house prices.
Finally, the panelists believe that there is only a 10 percent probability that Greece will break away from the euro in 2013 and a 13 percent to 18 percent chance that Ireland, Italy, or Spain will receive a bailout package.
Moreover, the panelists believe that there is a 70 percent chance that no current members will leave the eurozone over the next two years.
The report's other findings include:
• The federal deficit is expected to be $680 billion this year, down from the initial estimate of $868 billion in the May survey, and $650 billion in fiscal 2014, much lower than the more than $1 trillion deficit last year.
• The panelists suggest a less optimistic view than in the May survey regarding real private investment in nonresidential structures, equipment and software and net exports, which are expected to show a $432 billion deficit this year and, rising to $438 billion in 2014. They suggest that exports and imports will grow at around 2 percent in 2013 and between 5.4 percent and 5 percent, respectively, in 2014.
• The dollar is expected to average $1.31 per euro in 2013 and $1.30 per euro next year.
• Corporate profits are expected to grow 5 percent this year and 7.2 percent in 2014. The S&P 500 Index, which closed on Dec. 31, 2012, at 1426, is expected to increase to 1700 in 2013 and at 1764 in 2014.