Bruce Yandle, dean emeritus of the College of Business & Behavioral Sciences at Clemson University, expects economic growth to average 2 percent the first two quarters of 2007 and then pick up in June.
“With $3.00 gasoline, a popped housing bubble, growing deficits and a double handful of interest rate increases, prognosticators are still asking how this sailing ship will land. Hard? Soft? Or not at all,” he wrote in his economic forecast published in December.
“The signs right now are signaling a landing . . ., a soft one,” he added.
“Apparently driven by inflation concerns, the Fed has squeezed the economy, doing so with a new recognition that things happen with a lag. But with some 14 earlier increases working their way through the economy, the Fed has held steady for two meetings. No increase. No decrease. Add on nine months, and we get to June 2007, the time when the economy should begin to accelerate again. … By the time the year ends, real GDP growth should have averaged about 2.7 percent.”
Yandle noted that big industrial activity is “still lagging.”
He also pointed out that the “Fed’s effort to reduce the supply of credit has delivered slower growth, just as they wanted.”
Overall, for 2007, Yandle forecasts inflation at 2.5 percent, unemployment to drop to 4 percent, prime interest rate to increase slightly to 7.75 percent, and 30-year fixed mortgage rates to drop to 6 percent as the Dow Jones Industrial Average climbs to a record 13,200.
The Clemson economist also believes oil prices will decline substantially to $45 a barrel from well north of $60 in December of 2006.
On the jobs front, Yandle expects continued strong growth in the healthcare sector.
