WASHINGTON — American consumers will again be the drivers of the economic expansion in 2011 as employment picks up and wages grow, economists are predicting.
Purchases will climb 2.5 percent next year, up from the 2.3 percent Morgan Stanley's New York-based economists projected last month and the 1.7 percent increase they forecast for 2010. The gains are short of the 3.5 percent average advance over the decade leading up to the recession that began in December 2007.
Consumers will be "a significant contributor to the growth outlook," said Morgan Stanley's David Greenlaw, the most accurate forecaster of household spending over the past two years according to data compiled by Bloomberg. More jobs "mean we will see incomes grow by about 2.5 percent. You'll get gains very similar to that on the spending side."
Greenlaw's peers this month turned even more optimistic about the outlook for growth and consumer spending, which accounts for about 70 percent of the world's largest economy. Purchases will grow 2.6 percent in 2011, according to the median estimate of 56 economists surveyed from Dec. 2 to Dec. 8.
Never miss a local story.
Fed policymakers, who meet Tuesday in Washington, are likely to make no change to their $600 billion monetary stimulus, according to 38 of 39 analysts in a separate Bloomberg survey completed Wednesday. Eight of 37 said the Fed would ultimately buy more than the $600 billion planned through June, and two said it would buy less.
Respondents unanimously said the Fed would retain a sentence in its statement saying officials continue to "anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period."
Economists in the monthly survey projected gross domestic product will rise at a 2.5 percent annual rate in the final three months of this year, up from the median forecast of 2.2 percent in November. They raised the estimate for all of 2011 to 2.6 percent and to 3.2 percent for the following year.
"There's no question the consumer is playing an increasingly larger role," said Nariman Behravesh, chief economist at IHS in Lexington, Mass., who also boosted his forecasts. "We're seeing an improvement in the overall economic outlook."
The improvements may come as a surprise after a Labor Department report last week showed payrolls rose by 39,000 workers in November, less than the most pessimistic forecast of economists surveyed by Bloomberg, and the jobless rate unexpectedly climbed to 9.8 percent, a seven-month high.
Nonetheless, consumer spending typically accelerates before unemployment peaks in the aftermath of recessions. Greenlaw projects payroll gains to average 150,000 to 200,000 a month in 2011.
Rising optimism for 2011 also reflected growing exports and a diminishing drag from housing, in addition to continued gains in business investment that bolstered the recovery this year. President Obama's deal with Republican leaders to extend unemployment benefits and Bush-era tax cuts may further spur growth because it went beyond what some economists were expecting.
"It has helped reduce the uncertainty that had been a big negative all these months," said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla. "It's a pretty big deal relative to what would have happened without it. It prevents a collapse in growth."
Morgan Stanley economists pore over the monthly retail sales figures, selecting categories like receipts at clothing, furniture and electronic stores that feed directly into the government's GDP calculations, said Greenlaw. They then factor in missing elements, from auto-industry results to weather- related spending on utilities, to come up with their winning estimates, he said.
Retail sales rose the most in eight months in November and beat analysts' estimates as consumers took advantage of discounts, particularly during the Thanksgiving weekend. Same-store sales at the more than 30 chains tracked by Retail Metrics jumped 5.3 percent, surpassing a prediction of 3.5 percent.