ANN ARBOR—Regardless of the outcome of the presidential election, one thing is fairly certain: the American economy will continue to roll along at a healthy pace over the next two years, according to University of Michigan economists.

“For the U.S. economy, 2000 has been yet another spectacular year with high growth, low unemployment and not much inflation,” says Saul H. Hymans, U-M professor of economics. “The economy will remain strong through 2002, but the rate of expansion is expected to be below that of recent years.”

In their annual two-year forecast of the national economy, Hymans and colleagues Joan P. Crary and Janet C. Wolfe predict that economic growth will slow to 3.6 percent in 2001 and 3.8 percent in 2002, down from this year’s rate of 5.2 percent.

While growth has slowed a bit in the second half of this year—due to higher interest rates, a jump in oil prices and a less-than-buoyant stock market—the rate of expansion will firm up heading into next year, the forecasters say.

“The slowdown to a sustainable growth pace will allow the Federal Reserve to hold short-term interest rates steady well into next year,” Hymans says. “However, by early 2002, emerging inflationary pressures—from rising unit labor and materials costs and from a depreciating U.S. dollar—are expected to induce the Fed to renew its tightening of credit conditions.”

And that means higher interest rates for consumers. The conventional mortgage rate is expected to increase from about an 8 percent clip this year and next to 8.6 percent in 2002. The rate for three-month Treasury bills will drift upward from 5.8 percent in 2000 to 6.1 percent in 2001 and 6.6 percent in 2002, while the 10-year Treasury bond rate will climb from 6.1 percent this year and next to 6.5 percent in 2002.

While interest rates are forecast to rise, unemployment is expected to hold steady at 4.1 percent in 2001 and 2002, up slightly from 4 percent this year.

On the inflation front, the consumer price index increased by 3.4 percent this year as a result of the run-up in oil prices. Consumer price inflation is expected to register only 2.9 percent next year as oil prices hold steadier and then pick up to 3.2 percent in 2002.

“With labor markets remaining tight and world demand for input commodities increasing, U.S. price inflation picks up, but still remains moderate,” Hymans says.

In addition to slower but solid economic growth, elevated interest rates, higher but moderate inflation rates, and stable unemployment, the U-M forecast (which is based on the Michigan Quarterly Econometric Model of the U.S. Economy and compiled by the U-M Research Seminar in Quantitative Economics) predicts that:

• Real disposable income will increase 3 percent this year and 3.7 percent in each of the next two years.

• Sales of light vehicles will fall from this year’s record-setting 17.4 million units to 16.6 million in 2001 and 16.2 million in 2002.

• Private housing starts will continue to drop from 1.59 million units in 2000 to 1.54 million next year and 1.52 million in 2002.

• Oil prices will top out at about $33 per barrel and remain near that level through winter 2001, then slip to $28.50 per barrel later that year before rising at a 2.7 percent rate during 2002.

• The federal budget surplus will grow to $315. 9 billion in fiscal 2001 and $379.3 billion in 2002, up from $283.6 billion this year.