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Economists See Slower Growth

Housing and autos, two large chemical markets, will remain at high levels

by William Storck
October 11, 2004 | A version of this story appeared in Volume 82, Issue 41

The latest forecast from the National Association for Business Economics (NABE) predicts 4.3% real growth in gross domestic product in 2004. This is down from members' expectations of 4.7% growth for the year in a survey published in May. The reason for the lower expectation is the "soft patch" in the second quarter when the economy grew at just 3.3%.

For 2005, the forecast released at the group's annual meeting in Philadelphia last week is for a slowing of U.S. economic growth to 3.7%.

The direction of energy costs was a huge topic of discussion at the meeting. The association's forecast calls for a decrease in oil price to $40 per barrel by the end of this year and for a further decline to $35 per bbl by the end of 2005. But there was a wide divergence of opinion among meeting attendees, with the range going from the $35 figure to as much as $55 per bbl at the end of 2005.

In housing, economists don't see the large downturn that many other analysts expect to result from rising interest rates. The NABE forecast does call for a significant slowing in 2005. After an 8.8% increase in residential investment in 2003 and a forecast 8.9% this year, residential investment will decline by 1.9% in 2005, according to the economists.

David W. Berson, vice president and chief economist at Fannie Mae, sees a greater falloff in unit sales. He told the meeting to expect a 9% decline in 2005 new home sales from 2004 levels and a 7% fall in existing home sales. Despite these declines in both new and existing home sales, he said 2005 would be the third strongest year ever for both categories.

Like housing, auto sales will be little affected by higher interest rates. The NABE survey forecasts light vehicle sales of 16.6 million units next year, little changed from the consensus forecast of 16.7 million for all of this year.



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