Frequently in the news one hears reports of this or that bank or
federal or international agency reducing their economic forecasts.
Typically in these revised forecasts the nation is predicted to grow
at a still positive, although much reduced, rate.
At the University of Oklahoma Center for Economic and Management
Research, we closely follow the forecasts from the Fair Model,
created by Yale economist Ray C. Fair and available free of charge
the Web site fairmodel.econ.yale.edu
These forecasts are used as inputs to our indicator-based
approach. The real gross domestic product historical data and
forecasts, as shown in the GDP table, reveal just how vibrant growth
has been since 1995 and extent of the expected decline in that
rate in the forecast period.
Note that the annualized percent change in real GDP has been has
high as 6.1 percent since 1995. For 10 of the most recent quarters,
growth has exceeded rates that Chairman Alan Greenspan and the
Federal Reserve Board of Governors view as unsustainably high
inducing increases in inflation.
The Fed generally regards any rate greater than 2 percent as
unsustainably high. Fair's forecast shows that the Fed's concerns
for too high growth are soon to be alleviated. His results have the
U.S. economy growing at only a 0.5 percent rate in the quarter
immediately ahead. For 1999, growth by his model is expected to
average only about 0.8 percent. It will take until the year 2001 to
return to respectable growth rates.
To be sure, Fair's results are on the low side of most forecasts
for 1999 and beyond. But it is significant that Fair decreased his
forecast for 1999 by almost a full percentage point from his prior
forecast, just three months ago.
If the Fair Model forecasts materialize, there will be
repercussions on the Oklahoma economy. We have noted in our
publications the greater diversity of growth and the renewed
dependency of the Oklahoma economy on continuing national economy
growth for its well being. Problems in agriculture and energy
markets accentuate the reliance of the Oklahoma economy on the
for its growth impulses. For Oklahoma to keep growing, we need the
nation to keep growing.
Behind the indicators
The focus of this article will be somewhat different from the
typical spouting of economic statistics and forecasts, although such
diversions can scarcely be avoided. The hope is to convey the
motivation and rationale that underscore the Price College
Indicators. These indicators debuted in the 70th anniversary
publication of the Oklahoma Business Bulletin in January 1998. The
indicators form the core of a forecasting strategy that we use to
make economic forecasts.
Business cycle research and economic indicators have a long
history in economic research. Analysts in this research domain
include many famous scholars, Nobel prize winners and former chairs
of the Federal Reserve. Examples include works by Burns, Hall,
Hansen, Hildebrand, Kindleberger, Lucas, Mitchell, Moore,
Tinbergen, Volcher and Zarnowitz. These are hardly household names
to the average citizen, but students of economics know them well.
Interestingly, Arthur Barto Adams, founding dean of the OU College
of Business Administration and initial publisher of the Oklahoma
Business Bulletin, was an early author on the subject. His book
Economics of Business Cycles was published in 1925 by McGraw-Hill.
He remained active in this area over the years. In 1950 he published
Business Cycles: Their Causes and Control. Our current research,
then, rests on a long tradition at OU.
There are several rationale for undertaking construction of a new
series of economic indicators. The financial press, of course,
devotes significant attention to every morsel of economic news. The
stock market and interest rates rise and fall on each new
announcement of housing starts, consumer sentiment, retail sales,
gross domestic product, trade deficits, growth in jobs and
unemployment rates. …