The U.S. economy may be in for a choppy year due to continued uncertainty and geopolitical risk, but growth for 2003 as a whole will likely be 3% or better according to a Dr. Sherry Cooper, Chief Economist at BMO Nesbitt Burns.

In a research brief, Cooper notes that businesses have slimmed down, productivity growth is now surging and operating leverage has increased sharply. Corporate balance sheets are improving, too. The American corporate competitive position will also be augmented by the continued fall in the U.S. dollar, Cooper says. Both monetary and fiscal stmiulus is also boosting growth prospects.

Cooper admits that there is still a good deal of uncertainty surrounding the White House’s tax plan, but it believes that the likelihood is that much of the plan will be enacted into law. “We might not see the accelerated cuts in the top marginal tax rate or the full elimination of the double taxation of dividends, but the total package will nevertheless likely be large and meaningful. The psychological effect is also positive, as it is abundantly clear that the Administration is committed to aggressive fiscal stimulus. The impact on the stock market is inevitably positive, although the degree of that effect awaits the details,” she writes in the brief.

Consumers will also continue to do their part, Cooper predicts. “Housing and autos, the stalwarts of the past two years, will inescapably slow from record levels of activity, but personal disposable income growth remains relatively strong, inflation is low and confidence is rebounding. Savings rates have edged upward and, finally, this jobless recovery will morph into a job-full recovery as we move towards 2004.”

“Without exception, post-recession employment rebounds have been strong and sharp. They have, in the past, occurred with a lag — sometimes a long lag like in the early 1990s or today. But the bounce back by year-end will be meaningful and it will catch many by surprise,” Cooper concludes.

http://www.bmonb.com/Economics/bottomline/common/line_b.asp?issue=20030115