The National Association of Business Executives (NABE) this week boosted its forecast for economic growth in 2010, and expects the economy’s performance to continue to improve next year as well..

“The outlook has improved in most respects,” says NABE President Lynn Reaser. “Growth prospects are stronger, unemployment and inflation are lower, and worries relating to consumer retrenchment and domestic financial headwinds have diminished.

“The economy is in reasonably good shape as the recovery approaches its first anniversary, but forecasters remain ‘extremely’ concerned about large federal deficits going forward,” she says.

GDP Expected to Grow by 3.2 Percent This Year

In its May 2010 forecast, the NABE predicts that the nation’s Gross Domestic Product (GDP) will grow by 3.2 percent this year. The NABE is also predicting a 3.2 percent GDP growth rate for 2011, meaning a sustained two-year stretch of healthy growth.

Reaser says that consumer spending, which accounts for more than two-thirds of U.S. GDP, drove the economy's growth in the first quarter of 2010. Consumer spending was stagnant for most of 2009 because of lingering concerns about the prospects for recovery from the worst economic downturn since the Great Depression of the 1930s. The economy bottomed out a year ago and has been gradually recovering since then.

Many business economists believe that the traditional cyclical forces of pent-up demand and inventory building are becoming more important. Although financial headwinds will temper the pace of growth, concerns about credit conditions have eased somewhat in recent months. Inflationary pressures are expected to gradually build, but a “stagflation” scenario—a combination of slow growth and high inflation—is considered highly unlikely.

Job Growth Now on a Steady Footing

Job growth is now on a steady footing, say the NABE forecasters. Except for a third-quarter slowdown related to a reversal of Census-related hiring, job gains are expected to remain robust throughout the forecast horizon. The jobless rate is forecast to steadily decline to 9.4 percent by the end of this year and to 8.5 percent by the end of 2011, though it remains high by historical standards and is ranked by panelists as their second greatest “concern.”

Business investment also will drive the economy's expansion, according to the NABE survey, with spending on equipment and software buoyed by higher profits. Small companies, which are still finding it hard to get loans following the financial crisis, are expected to benefit from some easing of credit conditions over the next few months.

The May 2010 NABE Outlook presents the consensus of macroeconomic forecasts from a panel of 46 professional forecasters. The survey, covering the outlook for 2010 and 2011, was taken April 27 – May 7.

Founded in 1959, the National Association for Business Economics is the professional association for those who use economics in their work. The Washington, DC-based organization has 2,300 members nationwide.