Several distinguished economists spoke with cautious optimism yesterday about the future of the U.S. economy at the 50th Anniversary Economic Outlook Conference.
The conference, which was attended by more than 100 business professionals, featured two renowned speakers who discussed the national economic forecast and predictions based on consumer outlook.
Saul Hymans, director of the Research Seminar in Quantitative Economics, began his lecture on the U.S. forecast by addressing previous overly pessimistic predictions.
“Consistent with our under-prediction of output growth, our forecasts of real disposable income, after-tax corporate profits and the unemployment rate were all too bearish,” he said.
Though forecasts about the government budget and unemployment rates in 2003 are slightly negative, Hymans predicted greater relief in 2004 for both categories.
“The deficit is expected to hit $286 billion in 2003,” he said. “Still, current deficits fall well short of those seen in the early ’90s. Unemployment will rise in 2003 to 6 percent, (but will) fall in 2004 to 5 and a half percent.”
Richard Curtin, director of the University of Michigan Survey of Consumers, highlighted the impact of optimistic consumer expectations on the market.
“Consumers say they’re fairly optimistic (because) inflation has been low for a long time,” he said. “Only one in 10 consumers expect conditions to worsen, while 40 percent expect improvement. It’s about as good as you get.”
Curtin said consumer expectations of a permanently lower inflation rate will have a unique effect on buying conditions in 2003 and 2004.
“Consumers are going to spend more and save more. The problem is that during 2003 the increase in spending will be smaller and the increase in saving will be larger than in 2002,” he said. “Just as consumer spending has tempered the recent economic downturn, trends in consumer spending will also temper the upturn during the year ahead.”
Both speakers discussed several economic risk factors, including the potential war in Iraq.
“This Iraq war raises gross domestic product by $46 billion next year. If resources are available, the war expands the economy (and) would cause a temporary spike in oil prices,” Hymans said.
“A recession economy could occur, but we have little basis on which to judge the economic dimensions.”
Curtin said the future of the economy ultimately rests with the success of the nation’s business sector.
“We can expect more of the middling or muddling along during the year ahead,” he said. “(But) whether we see an economy that will be limping along or be robust depends on the pace of business spending, not consumer spending.”