SIFMA Forecasts U.S. GDP Growth of 2.8 Percent in 2010

Members of the Securities Industry and Financial Markets Association’s (SIFMA’s) Economic Advisory Roundtable predicted that U.S. gross domestic product would grow 2.8 percent year-over-year in 2010.  The forecast is consistent with other economist’s views that the U.S. economy will recover, but at an anemic pace.  SIFMA noted that even though the economy will improve next year, the recovery will not feel as strong as a typical post-recession rebound because unemployment will remain elevated.  The panel forecast that, on average, the unemployment rate will be 10.1 percent in 2010.

Consumer spending is expected to recover somewhat to a growth rate of 2.0 percent.  U.S. households will likely continue to focus on reducing debt and the high unemployment rate will keep a lid on consumer sentiment and spending.  Business capital expenditures are expected to decline once again in 2010, though at a much milder pace of -0.3 percent.  The drop in business capital investment in 2009 is expected to be near 18.0 percent.

Slow growth and muted spending are expected to hold inflation in check in 2010.  SIFMA’s forecast calls for a “headline” inflation rate of 1.8 percent, and a “core” (ex-food and energy) inflation rate of 1.2 percent.  Interestingly, respondents were nearly unanimous in their opinion that the Federal Reserve’s expanded balance sheet did not pose a near-term inflationary risk. When asked to rank possible steps the Federal Reserve would take to reverse course, respondents cited reverse repos, with test operations totaling $1 billion as of Dec. 14, 2090, as the most likely first step by 80 percent of respondents. Other possible actions frequently mentioned by respondents were paying interest on reserves, directly selling assets back to the market or using a collateralized vehicle.

The Roundtable also forecast the S&P 500 to finish 2010 at 1225, which is very consistent with many market analysts’ predictions.  That would be about a 10 percent premium over the current level.  However, the market always has a way of defying the consensus.

To view SIFMA’s report, please click on the following link:  SIFMA Year End 2009 Economic Outlook.