AP survey: Slow economic gains into 2011

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Published: October 28,2010

Tags: economy

WASHINGTON — The job market and the economy will improve only slightly next year, according to an Associated Press survey of leading economists whose outlook for 2011 has dimmed over the past three months.

The latest quarterly AP Economy Survey shows economists are pushing back their estimates of when key barometers of economic health – hiring, spending, expansion – will signal strength.

In their view, shoppers and employers will stay cautious. Households will keep saving. Inflation will remain tame. And unemployment will dip only a bit from the current 9.6 percent rate to a still-high 9 percent at the end of 2011.

In the previous survey in July, the economists predicted unemployment of 8.7 percent at the end of next year. In the survey before that, they foresaw 8.4 percent. Some now think unemployment won’t drop to a historically normal 5.5 percent to 6 percent until at least 2018 – several years later than envisioned earlier.

It adds up to a grim picture for the new Congress that begins in January. Voter frustration over unemployment is threatening to cost Democrats their control of the House, and maybe the Senate, in the midterm elections Tuesday.

The new Congress appears unlikely to approve more spending to try to invigorate the economy and the job market. And the Federal Reserve is running out of options.

Yet the economists the AP surveyed still expect the economy to sidestep some threats that had raised concerns in recent months. They dismiss the likelihood of a second recession, for instance, and they think the risk of deflation is remote. Deflation is a prolonged drop in prices and wages that can make people unwilling to spend.

Fed Chairman Ben Bernanke has expressed concern about deflation – one reason why the Fed will likely announce Wednesday that it will buy Treasury bonds to try to further lower loan rates. Lower rates might spur more borrowing and spending and help raise prices.

The economists are sharply split on whether the Fed should do so. And they overwhelmingly oppose another round of government stimulus spending. They think the economy will make steady gains, just more slowly than they had earlier thought.

The AP survey collected the views of 43 leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation.

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