By Martin Crutsinger
The Associated Press

WASHINGTON - The economy appears headed for a banner year despite a springtime spike in energy prices and a recent increase in interest rates.

In fact, many analysts are forecasting that the overall economy, as measured by the gross domestic product, will grow by 4.6 percent or better this year, the fastest in two decades.

The economy grew at strong 4.5 percent growth rates in 1997 and 1999, when Bill Clinton was president and the country was in the midst of a 10-year expansion. However, if this year's growth ends up a bit faster than that, it will be the best since the economy roared ahead at a 7.2 percent rate in 1984, when President Reagan was up for re-election.

"We are moving into a sweet spot for the economy with interest rates not too high, jobs coming back and business investment providing strength," said Diane Swonk, chief economist at Bank One in Chicago, who is predicting GDP growth of 4.8 percent this year.

President Bush is highlighting the improving economy while Democratic challenger John Kerry focuses on what he calls a middle-class squeeze of rising health and tuition costs and laid-off workers forced to take lower-paying jobs.

Who will win on the all-important pocketbook issues? Economists aren't sure.

"It is unclear whether voters will remember the past year and the better jobs created during that period or the past four years," said Mark Zandi, chief economist at Economy.com.

Assessing the economy at midyear, most economists are sticking with the optimistic forecasts they had six months ago, even though inflation, driven by surging energy prices, rose faster than expected and the Federal Reserve started raising interest rates last month.

The economy grew at 4.4 percent in the first quarter and has been accelerating since.

"We are looking for a darn good year despite the fact that we had a big jump in oil prices and interest rates are going up faster than people thought would occur," said David Wyss, chief economist at Standard & Poor's in New York.

Offsetting those drags on the economy has been stronger growth in Japan and China, which helps U.S. exports; better-than-expected consumer spending, and much better job growth than analysts were expecting.

The economy has now created 1.5 million new jobs since August, compared with a loss of 2.7 million jobs in the previous 29 months, when the country was struggling with a string of blows from a deflated stock market to a recession and terrorist attacks.

Even with the 10 months of consecutive job gains, Bush is still facing a 1.2 million jobs deficit, from the last peak for employment in March 2001.

However, many analysts anticipate that the economy will generate about 200,000 jobs a month in the next six months, a pace that would be enough to erase his deficit figure by the end of the year. That would enable him to escape being the only president since Herbert Hoover in the Great Depression to have lost jobs while in office.

Although the economy created only 112,000 jobs in June, after averaging 304,000 jobs for the previous three months, analysts expect strong job growth the rest of this year.

They predict the unemployment rate - stuck at 5.6 percent for most of this year - will improve gradually, to 5.3 percent by December, as a strengthening job market draws people back into the labor force.

A survey of one group of top economic forecasters showed their optimism. Ninety-one percent said they expected the economy to grow at an annual rate of anywhere from 2 to 5 percent in the second half of this year, according to a quarterly survey being released today by the National Association for Business Economics.

Forty-one percent said they expected stepped-up hiring in the next six months, while 45 percent expected no change and 14 percent expected a decrease.

"By almost any measure - output, employment, profit margins, capital spending - this economy is strong," said Duncan Meldrum, the association's president and the chief economist for Air Products and Chemicals Inc.,