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Ten predictions for the 2010 economy

Will consumer spending move up and jobs grow apace in 2010? The answer depends on the economist you ask. A round up of the top predictions for the economy next year.

By Staff writer / December 31, 2009

People walk past a sign during the holiday shopping season in San Francisco, California, December 23. Will consumer spending move up in 2010?

Robert Galbraith/Reuters

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What would a new year be without a batch of predictions leading into it – especially when the economy is a top-of-mind issue?

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Here's a gleaning of predictions from financial forecasters. They offer interesting and sometimes provocative views, and some of them will surely be wrong. If Michael Darda is right about GDP, then Gary Shilling will probably be wrong about Treasury bonds, for instance.

With that "buyer beware" label attached, here's some financial food for thought:

1. The recovery will be stronger than the consensus expects. Michael Darda, chief economist at MKM Partners in Greenwich, Conn., is forecasting real growth in gross domestic product (GDP) to average about 4 percent for the six quarters that end in December of 2010, thanks in part to improved credit conditions. This also makes him an optimist on job creation. He says the US should start adding jobs early in the new year.

2. Consumer spending will grow about 2 percent. Asha Bangalore and other forecasters at the Northern Trust Co., say this isn't anything to write home about. "Consumer spending will continue to be constrained by sluggish labor market conditions, reduction in net worth, and tight credit conditions," they write. But it beats a decline in the arena that drives so much of economic growth.

3. Treasury bonds will perform well, but sell antiques. Economist Gary Shilling in Springfield, N.J., says the battered economy still faces deflationary pressures, because so much factory capacity is idle and so many people are out of work. He says reliable old Treasury bonds will do well as investors seek safety, as will some dividend-paying stocks like electric utilities. His "sell" list includes tangible assets from commodities to art and antiques.

4. Treasury bonds won’t perform so well. Many financial firms are predicting at least a modest rise in bond interest rates in 2010, as the recovery gains traction. A rise in rates tends to push down bond prices. The bear case for bonds: Governments will be issuing lots of new debts, while investors will be wary about rising rates and the rising risk of inflation.

5. Businesses will start investing ... a bit. Forecasters at IHS Global Insight say new factories aren't needed yet, in general. "But businesses are flush with cash, and we do expect increased spending on replacement investment to pull equipment purchases higher in 2010."

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