FX FRIDAY: Cleveland Fed's Top Economist Sees US '11 GDP Below 3%

The U.S. economy's slowdown should prove temporary as supply disruptions stemming from Japan's earthquake are solved earlier than anticipated and gasoline prices remain tame, a top economist at the Federal Reserve Bank of Cleveland said Friday.

However, Cleveland Fed Research Director Mark Schweitzer cautioned that the U.S. economy is unlikely to grow at a very strong pace for some time as continued troubles in housing weigh on consumer confidence and spending.

U.S. gross domestic product, the broadest measure of economic activity, should expand by less than 3.0% in 2011 after high energy prices weighed on consumer spending and Japan's disaster hit auto sales in the first half of the year, the central bank economist said.

At the end of April, the Fed projected that GDP would grow between 3.1% and 3.3% this year, but officials are likely to downgrade their forecasts at their next meeting on June 21-22.

For 2012, Schweitzer said he expects the economy to pick up some speed, expanding between 3.5% and 4.0%. That is only slightly below the Fed's April growth forecast of between 3.5% and 4.2%.

"There has been some negative news lately, but it doesn't look that problematic," Schweitzer said in an interview on the sidelines of the Cleveland Fed's policy summit, which this year focused on housing.

Japan's earthquake and tsunami, which the economist said hit the production of cars by Honda Motor Co. (7267.TO, HMC) in the Cleveland Fed district, could shave up to three-quarters of a percentage point off GDP in the current quarter, though he declined to provide a specific number. In the first quarter, GDP rose by an annual rate of just 1.8%.

Looking forward, Japan is making quick progress in fixing the supply disruptions and it looks as if problems will be solved by the third quarter, instead of at the end of the year as originally feared, Schweitzer said.

That should also help the jobs market, the Cleveland Fed economist said, noting that the persistently high level of jobless claims may be due partly to one-off reasons such as workers at auto-parts companies losing their jobs temporarily.

"It looks like gasoline prices will likely remain on the low side," Schweitzer noted as another factor that should help growth later in the year and in 2012.

Still, he warned that Americans' continued concerns about never turning the corner in the housing market could weigh on the economy for a long time.

On Thursday, Fed Vice Chairwoman Janet Yellen told the Cleveland summit that the recovery in the housing sector is likely to be a long and drawn-out process.

-By Luca Di Leo, Dow Jones Newswires; 202-862-6682; luca.dileo@dowjones.com

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