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According to the November 2009 NABE Outlook, compiled by the National Association for Business Economics, has a new outlook for the rest of 2009 and 2010 based on data taken October 24 to November 5. The group is reaffirming that its recent call that the great recession is over. It also believes that this jobless recovery will abate within the next few months as companies begin to add jobs in 2010. There is still an expected sluggish consumer upturn but the NABE is looking for a sizable housing rebound, low inflation, and further rise in stock prices. The majority of panelists surveyed also are optimistic that the Federal Reserve’s policies will not lead to higher inflation, but they are extremely concerned about high federal deficits over the next five years.

Where this is interesting is what the NABE respondents are calling for in 2010 gains in the stock market and losses in the dollar and bond market next year. Some figures are as follows:

The fourth quarter of 2009 is now slated for a 3.0 percent pace of real GDP growth and 2010 is predicted to experience a gain of 3.2 percent over its four quarters; economic growth is projected to slightly exceed its trend pace—which NABE panelists estimate at 2.7 percent—over the next five quarters. Real GDP growth should also be enough to recover losses from the recession and return output to an all-time high by the end of 2010.

The household sector is still expected to lag behind the overall economy with projected sales of 11.6 million vehicles presenting continuing challenges for the auto industry.

NABE panelists believe the end of net employment losses is near with modest declines during Q4 and a bottom in Q1-2010 and gains thereafter. But some 61% of panelists do not expect a complete recovery of the previously lost jobs until 2012 and the unemployment rate is predicted to average 9.6% percent in the final quarter of next year.

Housing starts and residential investment are both expected to rise sharply in 2010, with housing starts expected to rise by 36% and residential investment will grow 9%. The NABE believes that house prices should see a modest gain of 2% in 2010.

The return of business investment will be an engine of growth with restocking inventories slated for 2010 with higher operating rates and corporate profits; growth is not expected in structures though. Corporate profits are expected to rise 12.4% in 2010 and respondents expect the S&P 500 Index to climb 9.5% in 2010.

Bad news stays there for the greenback… The NABE respondents expect that the U.S. dollar will weaken further in 2010 on a trade-weighted basket of foreign currencies, but it should stabilize against the Euro. But about 44% of respondents said that the ‘present foreign exchange value of the dollar’ was undervalued on a fundamental basis, and only 20% believed the dollar is overvalued fundamentally. Also noted was that 87% of respondents expect the dollar to be the major reserve currency in 2015.

Government spending is expected to rise 2% in 2010; and 55% expressed “extreme concern” about the federal deficit over the next five years.

Inflation is expected to remain low. Non-Farm compensation is expected to rise 2.3% in 2010 on labor productivity gains of 2.8%. The core PCE deflator is seen at a gain of +1.5% in 2010. The NABE panel forecasts the federal funds rate to remain in its current range of 0 to 0.25% until late next spring followed by a gradual rise and should remain low at 1.0% as 2010 ends. Longer-term interest rates are expected to rise, but most moves are believed to be priced in: 10-year Treasury note is expected to have a 4.20% yield by the end of 2010.

After we went up and down the whole report, there are some key takeaways here worth mention. Some are very informative or at least offer an insight into where the growth will be. That is huge for housing and would make 2010 the first real growth in about 5-years. The 9.5% gain in the S&P would translate to a price of 1,216 if the 1,111 price today is the 2009 closeout price. That 10-Year Treasury Note rise to 4.20%, if the 3.40% rate of today is that same at year-end, would give longer maturity bond fund investors implied portfolio losses of 5% on a constant maturity basis and more importantly on a static snapshot basis.

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