Survey Predicts 4.3% Rise in GDP

Record crude oil prices will reduce U.S. economic growth by almost half a percentage point this year, according to a survey by the National Assn. for Business Economics.

Wall Street and business economists lowered their 2004 growth estimate to 4.3% in the group’s most recent quarterly survey from 4.7% in May, according to the median of 38 forecasts. Two-thirds of the economists blamed the weaker forecast on lower consumer spending caused by higher energy prices.

Gross domestic product rose at a 3.3% annual rate in the second quarter, down from a 4.5% pace in the first three months of the year. The economy has already absorbed most of the effect of a 52% surge in crude oil prices this year, and growth will accelerate to a 4% pace for the rest of the year, NABE said.

“Our panel expects the expansion to gain additional traction over the second half of this year and advance at a solid pace in 2005,” said Duncan Meldrum, president of NABE.

The U.S. economy is expected to expand 3.7% next year, the survey said. That’s higher than the 3.1% average annual growth rate of the 1990s. This year’s projected expansion would be the fastest since 1999, when the rate was 4.5%.

The economy has also experienced most of the inflation caused by higher energy prices, the economists said.

The consumer price index will rise 2.6% this year before slowing to a 2.3% gain in 2005, the survey said. The CPI rose 2.3% last year.

“The panel sees the bulge in prices to be mostly related to the spike in energy prices, and in any case, mostly behind us,” the report said.

The price of a barrel of West Texas Intermediate crude oil will fall to $40 by the end of this year and $35 by the end of 2005, the economists said. The November futures contract closed at $49.52 last week in New York Mercantile Exchange trading.

Yields on three-month Treasury bills, which are closely correlated to Federal Reserve interest rate policy, are expected to rise to 2% by the end of this year from 1.68% at the end of last week. Yields on 10-year Treasury notes are expected to jump to 4.75% from 4.17% on Friday, the report said.