Economic Outlook Bullish

By Malehorn, Jack | The Journal of Business Forecasting Methods & Systems, Winter 2004 | Go to article overview

Economic Outlook Bullish


Malehorn, Jack, The Journal of Business Forecasting Methods & Systems


THE NATION'S ECONOMIC OUTLOOK

The Journal of Business Forecasting Winter's Economic Outlook suggests a period of undaunted and unprecedented growth. (At the time of going to the printer the Bureau of Economic Analysis was in the process of a comprehensive revision of their NIPA-National Income and Product Accounts). Consequently, several of the variables are in a continual state of revision. Therefore, the analysis concerning these economic variables will be quite general until the revision process is complete. Those series in question are GDP, PDI, PCE and Chained Price Index.

Unequivocally and across the board, the forecasts are almost euphoric in nature. Certainly, there exists downside risks, the most salient being: (1) Extraordinary increases in energy prices due to the expected harsh winter and secondly the risk associated with the available supply and flow of oil continuing unabated, (2)Turmoil in the Middle East, (3) Terrorism, and (4) the continuing rapid devaluation in the dollar vis-a-vis other major currencies. However, none of these risks not withstanding, nothing individually or collectively could derail this roaring engine of growth. Dr. Ray Ferryman of the Ferryman Group perhaps sums up the assessment best, "...with orders up, inventories down, and the average work wage rising, it appears that the job market is finally gaining momentum. Investment will also increase, thus putting the final ingredient into the recovery and expansion." Undoubtedly, 2004 is predicted to be the best year from an economic perspective in quite a while.

CONSUMER MARKETS

Holiday retail spending provided the first glimpse of consumer's active participation in the current economic growth phase. Strong growth in PDI and PCE will support a revitalization of many consumer products industries and services. The slightest hint of any trouble on the horizon will be evident in consumer debt expanding at a fast clip. The stock markets are rolling and the marketplace appears to be begging for a return to good times tending to mitigate the reminder of September 11th. An examination of total light vehicle sales and housing starts supports the premise that households will be fully engaged in an upbeat mood.

LABOR MARKETS

Unemployment is declining and jobs are being created. Even job growth in the manufacturing sectors is beginning to bubble to the top. The Consensus expects a decline in the nation's unemployed throughout the forecast period.

INFLATION

The Consensus calls for an increase in price pressures of the order of slightly over 2 percent. Still, inflation of this magnitude seems palpable at least in the short run. As the economy flexes its muscles domestically and internationally it will become a test to determine whether past efficiencies gained through new technologies and smart management will stave off rapid price increases.

INDUSTRIAL SECTOR

The Outlook for business investment is for strong and unabated growth. The Consensus calls for a better than 10 percent growth rate in nonresidential fixed investment. In addition, the manufacturing sector's capacity utilization is anticipated to continue to increase throughout the forecast time horizon. …

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