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style='mso-bidi-font-weight:normal'>The Securities Industry and Financial Markets Association’s (SIFMA) Economic Advisory Roundtable today unveiled its predictions for 2008, forecasting that the pace of U.S. economic growth would slow in the first half of the year, but accelerate in the second half. In the year-end survey, the median forecast anticipates GDP to grow but at a below-trend pace of 2.1 percent in 2008 as the economy works through the housing sector contraction and the effect of credit market turbulence.
The Roundtable also expects the Federal Open Market Committee to reduce the target Fed funds rate by 25 basis points to 4.25 percent at the upcoming December 11 meeting. The consensus view among the Roundtable members was that the accompanying FOMC statement will emphasize risks to economic growth.
“Major factors dampening growth are the housing sector deterioration and tight financing conditions. On the other hand, factors promoting growth are the Fed’s accommodative monetary policy response to the credit market environment and the combined effect of a lower dollar and global economic expansion,” said Michael Decker, SIFMA senior managing director for economic policy. “Consumer spending growth is expected to slow in the face of housing and reduced credit availability headwinds.”
Like consumer spending, growth in business capital spending is expected to be slightly lower than the 2007 level. Business spending will continue to benefit from generally solid corporate balance sheets and cash balances accumulated during the recent period of strong corporate profits, but growth will be well below the rates seen in recent years.
While the housing spillover to the broader economy has been limited thus far, the housing sector decline is expected to run through most of 2008 or beyond. Housing prices will be the transmission mechanism to work off the excess housing inventory on the market and bring supply and demand into closer balance. Although assigning specific dates to the beginning of the housing recovery is difficult, most respondents do not expect housing prices to “hit bottom” and begin to recover nationally until 2009.
Finally, the reduced tax rates on dividends and capital gains enacted in 2003 are scheduled to “sunset” in 2010. Although not unanimous, the consensus view is that the result would be lower asset values and economic growth. SIFMA, separate from the Roundtable, has advocated extending the current rates on capital gains and dividends beyond 2010.
Follow the link below to view the full report:
