Economic Forecasting

Information Outlook, March 2001 | Go to article overview

Economic Forecasting

Each year since 1994, the staff has developed financial assumptions as an initial phase of the program planning process. In order to facilitate the process for developing the 2002 Association Program Plan and the FY 2002 Budget, staff has identified financial assumptions for the organization as well as the related programs and activities. The assumptions incorporate trends, forecasts, planning documents (i.e., the long-range financial plan), and economic outlook information received from the Congressional Budget Office, Merrill Lynch, and The Finance Committee reviews and considers the financial assumptions in approving the association's budget.

The generic assumptions which relate to the entire organization are revealed below. Since it is difficult to make economical projections with any certainty, many of the assumptions contain expectations pertaining to 2001 and the effect of such on 2002.

Economic growth will slow in 2001, sliding to about half of the FY 2000 increase of five percent. For the year as a whole, a recession seems unlikely in 2001, as the Federal Reserve will step in with timely interest rate cuts, starting by the end of January. Lower rates would help ease some of the ills that are building. These include growing consumer debt, tighter credit, rising bankruptcies, weakness in manufacturing, and softer sales of cars and other retail merchandise. Lower rates would also breathe life into the stock market, where falling prices this year will put a crimp in both consumer spending and business investment. Stock prices in 2001 likely will match the rise in corporate profits of around 8% to 10%. In turn, that will underpin growth in business spending, which should increase about 9%. Relief will come also from a drop in energy prices after the winter heating season, providing a boost to consumers and businesses in the second half of the year and into 2002. Export growth will give a lift t oo, as companies in Canada, Mexico, Europe and China buy American aircraft, high-tech gear, and services. The biggest risk is slower growth itself. When gross domestic product (GDP) is increasing around 2.5% or less, the economy is much more vulnerable. The Urban Consumer Price Index for 2002 is projected to rise 2.7%. The AIMS Association Financial Index is projected to increase nearly 4.5%. This will relate to an across-the-board increase in operational expenses.

Congress is likely to extend its moratorium on new Internet taxes in 2001, but there is less of a chance in 2002 that lawmakers will be able to fully resolve the contentious issue of how to collect sales taxes on Internet purchases. However, states will take the lead on the sales tax question, devising and implementing a simplified collection system in the next few years. It is anticipated (or shall we say hoped) that non-profits will retain their e-tax exempt statuses at least for the short-term.

Businesses will still expand and create new jobs and recent college graduates are a natural choice to fill many of the new positions. In some cases, firms will go after new graduates more actively than in the past because other hiring strategies have been exhausted in this tight labor market. Another big reason for the college-recruitment spike is the impending retirement of the baby boom generation. According to the Labor Department's Bureau of Labor Statistics, 25 million people will leave the labor force between 1998 and 2008. All but three million of those will be 45 or older. Realizing just how many workers they will lose when this starts to happen, employers are acting now to ensure that they have enough new employees to make up for the loss of more-experienced workers. Engineering, computer science, and business majors will be most in demand, but liberal arts grads will also be a hot commodity, especially as firms realize that students with strong academic records can often perform a variety of tasks. Average starting salaries for new graduates will increase between 4% and 6% in 2001, but they could go even higher if the competition really heats up. …

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