Subject: ECONOMIC FORECASTING SURVEY

From the Wall Street Journal, and of course very wordy.  But read down, it's good news and has an interesting observation at the end.

Forecasts for Early 2004
Are Lifted by Economists

Growth Is Expected to Remain Solid
Amid a Revival in Business Spending
By CINDY PERMAN and JON E. HILSENRATH
Staff Reporters of THE WALL STREET JOURNAL

Economists are nudging higher their projections for economic growth early next year, suggesting they are becoming more confident the recovery is sustainable.

Among 53 economists who participated in The Wall Street Journal Online's November economic-forecasting survey, the average forecast for the inflation-adjusted, annualized growth rate of the nation's gross domestic product during the first quarter of 2004 was 4.1%. That was revised up from the 3.9% rate predicted when the group was last surveyed in October.

The average estimate for the second-quarter growth rate was 3.9%, revised up from the 3.8% forecast in the prior month's survey. The economists put growth for the fourth quarter of 2003 at 4%, unchanged from their predictions in both the September and October surveys. Gross domestic product is a broad measure of the nation's output of goods and services.

The economists expect growth to remain steady throughout 2004. Offering second-half forecasts in the Online Journal survey for the first time, they forecast growth at a 3.9% rate for both the third and fourth quarters of 2004.

While a slowdown from the 7.2% growth rate the economy experienced during the summer, these 4% growth rates mark a notable acceleration from the pace of activity that prevailed during the first 19 months of the recovery, which started in November 2001.

Among the biggest reasons economists cited in ratcheting up forecasts was a rebound in business spending, which economists predicted would grow at a robust 10% rate for the next nine months. "I think 2004 marks the true turning point in terms of business confidence and business spending," said William T. Wilson, senior economist at Ernst & Young. Businesses' investments in plants, equipment and software grew 11% in the third quarter of 2003 from the second.

For weeks now, sustainability has been the buzzword hanging over the outlook for the economy. The economy grew in the third quarter at its fastest rate in 19 years, boosted in part by tax cuts and a wave of mortgage refinancings, which helped to put added cash into household pocketbooks. But some economists have worried that as the tax cuts fade and with mortgage interest rates rising, the recovery could fizzle, too. Now that is looking less likely to the people who follow the economy's quarterly wiggles in growth.

"This is the 'real thing,'" said Allen Sinai, chief global economist at Decision Economics Inc., "a real, live business recovery/expansion that will be widely felt throughout the globe."

Economists noted that with business inventories low, companies now must turn to increased production to meet consumer demand. Robust productivity gains, they said, are expected to boost corporate profits and companies will need to replace aging equipment such as computers and software.

Moreover, they said the effect of tax cuts hasn't yet faded. Nearly two-thirds of economists surveyed said that the effects of the tax cuts will continue to have a significant impact on economic growth over the next 12 months, while 7.7% said tax cuts would be the primary driver of growth over that period. More than 17% said that tax cuts will have some effect, but not a meaningful one, in the next year, while only 1.9% said tax cuts would have no effect.

"Consumer demand will be even stronger again next year," said Saul H. Hymans, a professor of economics and director of economic forecasting at the University of Michigan. Consumer spending, he said, will be "bolstered by especially solid gains in purchasing power due to rising employment, continuing tax cut effects and lower energy prices."

The nation's healthy pace of growth, in turn, is expected to create enough jobs to bring the unemployment rate down slightly in the months ahead. Economists nudged down their forecasts for the unemployment rate to 5.8% by next May, from previous estimates of 5.9%. The jobless rate was reported at 6% in October.

With solid growth projected through next year, economists say the Federal Reserve will likely begin tightening monetary policy sometime next year. Nearly half of those who responded said the Fed would lift interest rates by June 2004, and most pegged the increase at a quarter point, which would boost the central bank's target for the federal-funds rate, which banks charge each other for overnight loans, to 1.25%.

In the near term, what most economists will be watching is what the Fed says, rather than what it does. Most expect that by early next year, the Fed will stop repeating in its policy statements that it expects interest rates to remain low for a "considerable period," thus hinting at a possible increase in rates later in the year.

Economists nudged higher their forecasts for November consumer prices to 2.2% from 2.0% in the last survey. But they expect consumer-level inflation to fall back to 1.9% by next May.

In a separate aspect of the survey, economists weighed in for the first time on the economic policies of presidential contenders in the Democratic Party. While Howard Dean, who has called for the repeal of the Bush Administration's tax cuts, is widely seen as a front-runner for the party's nomination, he wasn't a favorite among the business economists who participate in the survey. Only one economist surveyed said Mr. Dean's policies were best suited -- when compared with the other Democratic candidates -- to increase employment, incomes and growth.

Senator Joseph Lieberman won the support of 11 economists, or 29% of those who answered the question, while Wesley Clark won the support of five and John Kerry won the support of four. Eight economists indicated they felt none of the candidates could get the job done.