Economists lower already bearish outlook





DENVER�(CNNMoney.com) -- The recovery is sputtering and the outlook for the rest of the year isn't looking much brighter, according to a new survey of leading economists.

Economists surveyed by the National Association for Business Economics have cut their growth forecasts for both this year and next, the report released Monday showed.

The panel of 46 economists expects gross domestic product, the broadest measure of the economy, to grow at a pace of 2.6% in both 2010 and 2011, down from the group's previous prediction of 3.2%.

About 37% of survey respondents expect the recovery to remain "subpar as severe wealth losses and onerous debt burdens inhibit spending and lending."

Economists ranked inflation as a greater concern than deflation, but a stagflation scenario -- combining weak economic growth with rising prices -- remains a long-shot, NABE said.

Businesses will continue to lead the recovery -- albeit a slow one -- and the job market should pick up slightly in the second half of 2011, the report said.

The group raised its forecasts for business spending on equipment and software, but lowered its expectations for consumer spending, which alone counts for two-thirds of the nation's economic growth.

Housing: Home prices are likely to rise 1.2% next year, but that rate will not be fast enough to keep up with inflation, NABE said.

GDP: The report predicted a 2.3% increase in real GDP in the fourth quarter of 2010, bringing total economic growth to 2.6% for the year.

Jobs: The panel forecast the unemployment rate to rise to 9.7% this year, and then fall to 9.2% by the end of 2011.

A separate report from the government on Friday showed the unemployment rate is currently at 9.6% nationally.

Deficit: Even after shrinking slightly next year, the federal deficit will remain "extreme" at $1.2 trillion, the report said. NABE panelists said the deficit is their single greatest concern for the economy going forward, exceeding fears about high unemployment, or deflation or inflation.

Housing: Home prices are on track to fall 1.5% this year, but are forecast to rise about 1.2% through the end of 2011, NABE said.

Spending: Consumer spending has picked up slightly this year, but has been held back by the weak job market and falling home prices. One in five NABE economists believe consumers have had an attitude shift in favor of boosting their saving habits.

NABE economists lowered their outlook for consumer spending for both 2010 and 2011 and forecast this year's holiday retail sales to be "especially weak," rising only 2.5% from last year.