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Merrill Forecaster Optimistic About 2005

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The U.S. economy should do fine this year.[@@]

A top executive at Merrill Lynch & Company Inc., New York, gave that assessment here this week during a review of economic predictions for 2005.

Robert Doll, president and chief investment officer at Merrill’s Merrill Lynch Investment Managers unit, said the U.S. economy will do reasonably well despite pressure from a slowdown in consumer spending and a steady increase in interest rates.

Doll expects growth in consumer spending to fall below 3% this year, from 3.7% in 2004, and he expects interest rates to continue to increase in 0.25-percentage-point increments, unless economic growth is much different from what most economists are predicting.

The changes will slow growth in the U.S. gross domestic product to about 3% to 5%, from 4.4% in 2004, but that growth rate is “respectable,” and it is “still a very good result” for a mature economy, Doll said.

The U.S. current account deficit will continue to be a “structural problem” this year, but they should start to improve for the first time since 1995, Doll said.

The current account deficit is a measure of the balance of trade, international investment and transfers between the United States and other countries.

Here are some of Doll’s other predictions and observations:

- Asia will do better than the United States this year, and Europe will lag behind the United States.

- Soft demand may cut average earnings per share growth to 5% to 8%. That compares with a consensus forecast of 11% growth.

- Large-cap and quality stocks will outperform small-cap and low-quality stocks.

- High cash levels and the weak dollar will encourage non-U.S. companies to acquire U.S. companies. Similar forces will encourage U.S. companies to increase capital spending and buy back stock.

- Although U.S. households have significant amounts of debt, total household net worth increased to more $46 trillion during the third quarter of 2004, from $43.5 trillion at the start of 2000.


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