The Economic Outlook for 2011

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The information in this forecast is gathered by The Journal from sources it considers reliable. Neither The Journal nor the individual institutions providing the data guarantee accuracy; nor do any of them warrant in any way that use of the data appearing herein will enhance the business or investment performance of companies or individuals who use them. Jack Malehorn is a professor at Georgia Military College (M i I led g evi I Ie, Georgia). He is on the Editorial Review Board to the Journal of Business Forecasting. He has worked as President and CEO of The Black Hill Manufacturing Co., and COO of NorCom Advanced Technologies. He has also worked as Chief Economist for United Telephone Company of Pennsylvania and New Jersey, which is an operating company of Sprint. He has taught as an Adjunct Professor at Johns-Hopkins University, Graduate School of Business. For any comments and suggestions, contact him by email at Jmalehorn@yahoo.com.

PARTICIPANTS | Conf Board = Conference Board, New York, New York; Global Insight = Global Insight, Eddystone, Pennsylvania; GSU - EFC = Georgia State University, Economic Forecasting Center, Atlanta, Georgia; Moody's Economy = Moody's Economy.com, Westchester, Pennsylvania; Mortgage = Mortgage Bankers Association, Washington, D.C.; NAM = National Association of Manufacturers, Washington, D.C.; Northern Tr= Northern Trust Company; Chicago, Illinois; Perryman Gp =The Perryman Group, Waco, Texas; S&P = Standard & Poors, New York, New York; US Chamber - U.S.Chamber of Commerce, Washington, D.C.; Wells Fargo = Wells Fargo Bank, San Francisco, California.

"It was the best of times, it was the worst of times..." is the opening line in Charles Dickens classic, A Tale of Two Cities.

It seemed appropriate to mention the Charles Dickens classic as the salient theme in this quarter's economic outlook. Given the immense uncertainty surrounding the state of the economy, you would naturally expect quite divergent points of view unfolding. True, I cannot really find anyone who argues a glowing and positive assessment of the nation's economy; still, there are those who believe we are not far removed from a more robust recovery than presently experienced. On the other hand, there exists a contingent with a far less sanguine point of view. Let us proceed to the analysis....

Dr. Rajeev Dhawan, Director of the Economic Forecasting Center at Georgia State U niversity's J. Mack Robinson College of Business wrote in his quarterly Forecast of the Nation an article entitled, "Abnormality: The Economy's New Normal." In it, he paints a compelling case of an apparent structural shift that has occurred in the economy. Dhawan says, "The new normal in the nation's economy is the abnormal and we have to make peace with it." As such, using as reference points historical economic experiences for comparison purposes is futile. The reason for his pessimism is linked to depressed home values, ballooning entitlements, the divided political arena, and a shaky banking system. Bottom line: Dhawan believes real economic growth, i.e., real GDP will be far below annual growth rates we had become accustomed to during the mid-90s until recently. Dhawan continues: Another abnormality the country will be living with stems from adoption of the second phase of the Fed's quantitative easing, or QE2, strategy of buying treasury bonds, or "printing money" as he called it. Facing an economy resting on the edge of a deep precipice, the so-called double dip recession, the Fed must provide adequate liquidity. "Although it did spark a stock market rally, which was the intended effect, it also resulted in a simultaneous drop in the dollar." Dhawan said the QE2 strategy will help the economy indirectly by raising inflationary expectations, which will boost the equity market. Furthermore a weak dollar will boost exports, especially to emerging markets. These factors, said Dhawan, will hopefully increase CEO confidence, which will be the key to investment and job creation. …