Recovery Will Pick Up Steam in 2011

Arlington, Va. (January 3, 2011) – The recovery will pick up steam in 2011, but growth will remain moderate, according to the consensus forecast of 25 economists surveyed for legal and business publisher BNA’s annual outlook on the U.S. and international economy.

Both inflation and the Federal Reserve’s target interest rate are expected to remain low. A self-sustaining expansion will hinge on increased job growth, consumer spending, business investment, and exports, as government stimulus continues to fade.

U.S. Economy

• The 18-month-old recovery will gain strength in 2011, although the pace of growth will remain moderate compared with that of prior rebounds.
• Key underpinnings of growth include business and consumer spending, U.S. exports, and increased hiring; with additional support provided by the federal tax cut package enacted at the end of 2010.
• Major risks to the economy could develop if energy prices jump, business remain reluctant to add workers, or the European debt crisis becomes widespread.

Labor Markets

• Employment gains will average 156,000 jobs per month in the first six months of 2011, accelerating to 193,000 jobs per month in the second half.
• The unemployment rate will decline gradually during the year but remain high, averaging 9.5 percent in the first half and 9.2 percent in the second half.
• Private sector workers’ total hourly compensation will grow 2.2 percent in 2011, up from a 2.0 percent hike in 2010, as of the third quarter.

Monetary Policy

• Inflation is expected to stay tame, well below the Federal Reserve’s preferred rate of about 2 percent.
• The Fed is expected to complete its planned purchase of $600 billion of Treasury debt by June 30, but is unlikely to expand the program.
• The central bank is likely to maintain its historically low, near-zero federal funds rate target for all of 2011.

World Economy

• The global economy is expected to continue expanding in 2011, although at a moderate pace in most countries.
• U.S. and European economies are expected to show more momentum and build on growth in 2010.
• Analysts see potential for surprises on upside with possibly higher than expected growth in some economies and higher inflation in emerging markets.

The 25 economists who participated in the BNA study are from financial institutions, consulting firms, and academia. They were interviewed from Dec. 4-14, 2010.