Newspaper article The Christian Science Monitor

2006 Economy Looks Solid ; Most Forecasters See Growth of at Least 3 Percent, Which Means More Jobs and Higher Pay

Newspaper article The Christian Science Monitor

2006 Economy Looks Solid ; Most Forecasters See Growth of at Least 3 Percent, Which Means More Jobs and Higher Pay

Article excerpt

A fifth straight year of economic expansion in 2006 promises to mean new jobs, higher pay, and maybe even fatter investment portfolios for millions of Americans.

Despite a backdrop of challenges - notably signs of climate change in the nation's sizzling real estate market and investor jitters over bond rates - this forecast represents a strong consensus among economists.

There's no guarantee that the economy will actually match current expectations of 3.4 percent growth next year. But of more than 50 business economists surveyed by Blue Chip Economic Indicators, all but five see growth of 3 percent or higher. The lowest forecast is 2.6 percent. The upshot for those who work, shop, and invest would be a solid but not exciting environment.

"I think we'll see decent income growth and decent job growth," says Nariman Behravesh, chief economist at Global Insight in Lexington, Mass. "The average household will be better off, but moderately."

The consensus forecast calls for:

* Rising pay. Disposable incomes will rise by 3.2 percent, after inflation, more than double this year's gain.

* Costlier borrowing. Short-term interest rates (the three-month Treasury yield) will average 4.5 percent and longer-term rates (10- year Treasury) 4.9 percent, both small upticks from current levels.

* Moderate inflation. The consumer price index will rise 3.0 percent during 2006, down slightly from 2005.

* Healthy profits. Corporate earnings will grow 7.9 percent, but that's less than half the pace of 2005. That mixed picture, coupled with rising interest rates, has left Wall Street debating whether next year's stock market will head up or down.

* A strong job market. Unemployment to remain level at 5.0 percent. While job creation is not forecast in the Blue Chip survey, some experts call for job growth to reach 2 million for the year, higher than 2005 and much stronger than the early years of the current economic expansion.

"We're optimistic about the job picture for the next year," says John Challenger, who heads the outplacement firm Challenger, Gray & Christmas in Chicago.

Of course, these numbers are merely forecasts. But Randell Moore, editor of the Blue Chip Economic Indicators, says that when averaged together, the resulting consensus has been much more reliable over the years than any individual prediction. …

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