Economists say consumer spending will spur growth

Economists say consumer spending will spur growth The economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession, economists surveyed by Bloomberg News predicted.

Growth will average 1.5 percent in the July-to-December period, compared with last month's 1.2 percent projection, according to the median of 57 forecasts in the survey taken from July 2 to July 8. The jobless rate will exceed 10 percent early next year and average 9.8 percent for 2010.

Signs of stability in the housing market, improving consumer confidence and smaller declines in auto sales are reinforcing forecasts for gains in consumer purchases. Although the recovery is likely to be tempered by job cuts and shrinking household wealth, most economists said a second stimulus package won't be needed.

"We are on the cusp of stabilization," said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Conn. "The right things are happening. They're not happening fast enough to make everyone comfortable just yet, but we're certainly headed in the right direction."

Federal Reserve officials will begin to lift the benchmark interest rate in the third quarter of next year and take it to 1 percent in the final three months, survey participants forecast. A month ago, economists predicted that the Federal Reserve would hold the rate near zero until the fourth quarter of 2010.

The economy probably shrank at a 1.8 percent rate from April to June, the latest survey showed, less than economists forecast last month. The economy will grow in the current quarter and expand 2.1 percent next year, they said in the current survey.

Survey participants also raised their projections for consumer spending, which accounts for about 70 percent of the economy. Purchases will rise 1 percent this quarter after contracting in the prior three months, they said.

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