US rates tipped to rise one point over 12 months

US interest rates will rise by a full percentage point over the next 12 months, according to a leading US economic forecaster.

Mr Ken Goldstein, economist at the Conference Board, predicts that the first in a series of quarter percentage point rises will come before August and possibly as early as next month.

In an interview at the IMI management conference, he said the rate rises would have a limited impact on the burgeoning US economy.

"They will not kill an economic recovery that is producing 125,000 jobs a month," he said.

A rise in US rates was now certain following the dramatic improvement in job creation seen last month, which laid to rest the spectre of "jobless growth", he said.

Mr Goldstein singled out one of the reasons given for the US economy's apparent failure to create jobs - the "offshoring" or "outsourcing" of jobs from the US to countries with lower labour costs - as a particular red herring.

He said that the worst-case estimate was that up to 500,000 jobs would be lost this way. This was less than 1 per cent of the professional and technical jobs in the US economy, he said.

He also said that the dramatic increase in US productivity, which was also blamed for the economy's failure to produce jobs, had also proved short-lived.

"Productivity in the third quarter of 2003 was 8.5 per cent - that was way above average. We are now back at trend," he said.

Mr Goldstein said that he expected the US economy to continue to create jobs at the rate of up to 125,000 a month into the middle of next year. By that point, the economy would have fully "caught-up", he said.

A significant portion of the growth being seen in the US economy is being driven by business catching up on investment that had been delayed by two or three years because of uncertainty, he said.

"A lot of stuff was not replaced between 2000 and 2002."

Once the process is complete, the economy will move from a growth rate of 4.5 per cent to nearer 3 per cent.

The problem will then become one of falling productivity growth against a background of rising wages.

"If you are going to grow at 5 per cent for a while, that drives the labour market and drives up wages."

If companies respond by trying to drive up prices they will end up driving their customers to their competitors, he said.