FWI group starts '07 with econ forecast

Northwestern Financial Review, Feb 1-Feb 14, 2007

The Twin Cities Chapter of Financial Women International kicked off 2007 with its annual economic update, getting a report from economist Ben Eskierka, vice president of United Bankers' Bank Securities. Eskierka expects a slowdown in the economy during the first half of 2007, with the Federal Reserve lowering rates in the second half of the year.

Eskierka said he expects the GDP for fourth quarter 2006 to come in at 2 percent, bringing the average for all of 2006 to 3.05 percent. Looking ahead to 2007. he predicted slower growth. "At this point, we are predicting a 2007 GDP rate of 2.5 percent," Eskierka said, acknowledging that rate is lower than the historical target for the capacity of the U.S. economy, which is typically pegged at 3 percent.

The current rate environment, in which long-term rates are lower than short-term rates, is "worth paying attention to," Eskierka told the group of 60 people meeting at the Grand hotel in Minneapolis on Jan. 9. An inverted yield curve is generally an indicator of economic weakness, Eskierka said seven of the last eight times the United States produced an inverted yield curve, the economy went into recession. Eskierka said that within the next 12 months, the United States has a 25 percent chance of slipping into recession.

Eskierka called attention to Federal Reserve Board Chairman Ben Bernanke, who replaced long-time Fed Chief Alan Greenspan last year. "Overall, under the new leadership, so far, so good," Eskierka summarized. He noted that one of the objectives of the Federal Reserve is to maximize employment. With the current unemployment rate hovering around 4.5 percent, Eskierka said the Fed is "doing pretty good" on this objective.

The Fed also tries to keep prices stable. Eskierka said it is too soon to know whether the Bernanke Fed will succeed on this objective. Also, Eskierka said rising housing costs may cut into consumer spending, which could be a real drag on the economy. "This is the wild card and the item to watch," he said.