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BDA and Moody’s Economy.com release economic forecast

Inaugural RBDA Economic Survey Forecasts Stronger Growth Later in 2010 into 2011; Housing and Employment to Improve in Most Regions of U.S.; Survey Conducted in Collaboration with Moody’s Economy.com

The first-ever semiannual economic survey conducted by the Regional Bond Dealers Association, in collaboration with Moody’s Economy.com, forecasts U.S. GDP to rise 2.7 percent in 2010 and three percent in 2011, as the economy picks up steam later this year. The survey, conducted among members of the RBDA’s Economic Advisory Committee, including chief economists and credit market strategists, also predicts business conditions will modestly improve in all regions of the U.S., except the West where conditions will continue to weaken and the Great Lakes where the economy will at least stabilize.

“A heavy dose of fiscal stimulus, along with unprecedented monetary easing by the Federal Reserve, have begun to revive the economy and are expected to create even more momentum later in the year,” said Mark Vitner, Senior Economist at Wells Fargo Securities and Chair of the Advisory Committee. “In the survey, respondents also indicate they believe private sector consumer and business spending will pick up later in 2010, replacing federal stimulus as the main engine of economic growth.”

Despite their generally upbeat outlook, survey respondents also see substantial economic headwinds which could limit growth. Specifically, respondents are concerned about the impact of high unemployment, unusually tight credit conditions and significant financial stress among state and local governments. Regionally, respondents point to housing and credit availability as the most important risks in the West, weaker employment in the Midwest, housing and credit concerns in the South and lower state and local government spending in the Northeast.

Conversely, however, survey respondents noted the U.S. economy could benefit from global growth which could stimulate stronger exports. Additionally, easier credit availability than currently anticipated would foster growth as well. Inflation is also expected to remain controlled at less than two percent based on the median forecast.
“A key variable is clearly credit availability,” noted Steve Cochrane, Managing Director at Moody’s Economy.com. “Greater credit availability would significantly help economic performance. Weaker availability would be a significant drag.”

Survey respondents predict the labor market will improve modestly but unemployment will still remain at historically high levels. The median forecast calls for the unemployment rate to decline from ten percent in the fourth quarter of last year to 9.9 percent in the first quarter this year and then remain above nine percent through the third quarter of next year. The Committee expects to see net employment gains over the next six months in all regions of the U.S. with the exception of the Midwest where employment is expected to be flat. Generally, the South and the West will see the strongest employment growth over the next two years.

The Committee expects housing to begin a long delayed recovery this year with rising housing starts, sales and prices. The consensus is for home prices to be modestly higher in 2010 and again in 2011. Even so, housing prices will remain well below their peak following the double digit losses of the last few years. Regionally, the consensus view is that prices will rise over much of the forecast period from 2010 to 2012 and will be rising in all regions of the U.S. by 2012. Respondents also predict an uptick in housing construction across all regions over the forecast period, 2010 to 2012.

Survey respondents include economists and credit market strategists from a number of middle market broker dealers around the U.S. They include Scott Brown, Senior Economist at Raymond James who also serves as Vice Chair of the Advisory Committee, John Augustine of Fifth Third, Stuart Hoffman of PNC Bank and Greg Miller of Sun Trust.

“The RBDA’s economic forecast is different from other surveys in two key respects,” commented Mike Nicholas, Chief Executive Officer of the RBDA. “First, the economic advisory committee includes economists and credit market participants from middle market dealers and, second, the survey addresses regional economic issues, as well as national ones.”


RBDA Economic Advisory Committee

Committee Chair
Mark Vitner
Wells Fargo Securities, LLC

Committee Vice Chair
Scott Brown
Raymond James & Associates, Inc.

Members

Steve Cochrane and Marisa Di Natale
Moody’s Economy.com

John Augustine
Fifth Third Bank

Peter Caron
Seattle-Northwest Securities Corporation

Brian Coulton
Fitch Ratings

Jim DeMasi
Stifel, Nicolaus & Company, Inc.

Kevin Giddis
Morgan Keegan & Company, Inc.

Chris Goetz
BB&T Capital Markets

Stuart Hoffman and Robert Dye
PNC Financial Services

Chris Low and Jim Vogel
FTN Financial

Greg Miller
SunTrust Bank

Michael Marz
First Southwest Company

Frank Nothaft
Freddie Mac

Kevin Schultze
Stone & Youngberg LLC

Diane Swonk
Mesirow Financial

David Wyss
Standard & Poor’s

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