Economist says US likely to grow 2.5 - 3.0% this year

The US economy is likely to grow by between 2.5% and 3.5% this year, avoiding a slide back into recession, National Bureau of Economic Research (NBER) president Martin Feldstein said.

"The most likely thing is that we will have economic growth in the 2.5 - 3.5 percent range," Feldstein told AFX News in an interview on the sidelines of an Asia-Pacific Economic Cooperation (APEC) summit in the Mexican beach resort of Los Cabos.

The NBER is a private body but it is designated as the official arbiter of US business cycles, providing the final word on dating recessions and economic expansions.

Increased investment is the key to economic recovery, Feldstein said. And business investment was in fact picking up despite sentiment among many corporate executives that it remained stagnant, he said.

Sy Sternberg, chairman, president and chief executive of New York Life Insurance Co. disagreed.

He said he expected no pickup in business investment for about 12 months.

"It's not happening anytime soon. A group of us met with the Secretary of Commerce (Donald Evans) last week and I am not optimistic about the US economy," he said.

But Feldstein said his own assessment was backed by the evidence.

The Commerce Department had reported that business investment excluding structures was already rising in the second quarter despite weak corporate profits, which improved in the third quarter.

"The answer is somebody is investing and they are investing more than they did the year before," the NBER chief said.

Feldstein cautioned that there are risks to the US economy, most notably a drop in consumer spending, which could be hurt by an increased savings rate stemming from fears about the stock market.

"The big risk in the outlook to my mind is the consumer," he said. "If savings rises very sharply, then we will not get the kind of expansion that most analysts expect."

Two drivers of current consumption, last year's tax cut and a recent boom in mortgage refinancing, could not continue to support spending, he said.

Feldstein said he doubted a US-led war against Iraq would cause an oil price spike.

"If there was a general fear on the part of the experts that oil prices were going to go through the roof in January of February when the war presumably would happen you'd see that in the futures price for oil and it's not there at all," he said.