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2 stalwart economists see beyond the gloom

Updated: May 3, 2013 12:14PM



Originally published: November 28, 2005

I’ve heard enough gloomy economic forecasts for this holiday season. I’ve even written a few myself. Consumer debt, rising interest rates, higher energy prices and headline-making job layoffs are enough to depress even the greatest optimist.

So I was delighted to read two positive forecasts from economists with great track records. I’m hoping they’ll continue to be right, and I wanted to share them with you.

USA Today ranked Brian Wesbury, chief economist for Claymore Advisors in Lisle, as one of the nation’s top 10 economic forecasters last year, and he’s also been acclaimed by the Wall Street Journal for his accurate predictions.

That’s why I was encouraged to see that wind, rain, energy prices and layoffs haven’t dampened Wesbury’s enthusiasm for a growing economy in 2006. In fact, he’s predicting economic (GDP) growth of 4 percent in the coming year, and says oil prices will decline to about $40 a barrel by the end of 2006.

Opportunity in education

But, I asked, what happens to unemployment, especially in the light of recent layoffs in the auto industry?

Wesbury said today’s economy is like the Industrial Revolution, but now factory jobs are giving way to services and technology. “There is a great deal of pain, but there is more opportunity than ever before,” he said. “And that’s why education and training are so important in our society.”

But we all live in the present, and rising interest rates, rising energy bills and mountains of debt must have some impact.

He responded quickly with indisputable statistics: “Interest rates remain very low by historical standards. At the current 4 percent, the federal funds rate [a determinant short-term rate] is well below the rate during the boom of the late 1990s, when it averaged over 5 percent.”

He noted that while energy takes a bigger bite out of our wallets, incomes have increased 5 or 6 times faster than energy prices. “Between 2001 and 2005, energy spending has gone up by $225 billion. But personal income has risen $1.5 trillion during that same time period, not including home-equity extraction. That’s why retailers aren’t hurting.”

He also points out that in 2006, we’ll spend $400 billion more on health care than in the previous four years. “Don’t overly fret about energy prices,” he advised. “They’re painful but they won’t kill the economy.”

Diane Swonk, chief economist at Mesirow Financial, also has an enviable track record. Last year, her forecast for a good holiday shopping season was on target, and her 2005 prediction said the economy would grow at about 4 percent. So far it looks like 2005 will wind up with 3.6 percent growth.

For this year’s shopping season, Swonk remains optimistic, forecasting 6 percent growth in sales of general merchandise and apparel, about the same pace as last year. Many looked askance at that prediction just two weeks ago. But Visa’s report on consumer purchases last week confirmed spending by consumers and businesses on Visa-branded payment cards during the third week of November (Nov. 14-20) totaled more than $22.6 billion, a 16.6 percent increase over the same period in 2004.

For the economy as a whole in 2006, Swonk is relatively upbeat, with a forecast of 3.5 percent growth, and business picking up the slack left by indebted consumers. Post-hurricane rebuilding will add to growth, she added.

Upper-income shoppers

Swonk predicts upper-income consumers will continue to spend, pointing out that nearly 9 percent of individual taxpayers report earning more than $100,000 per year -- and they account for almost half of all income generated in the U.S. Those people are still shopping.

She acknowledges that those who earn less can’t feel so optimistic, and that’s why consumer confidence has taken a sharp drop.

Swonk comes from Detroit, and is sensitive to the auto industry. But she said the layoffs at GM, Ford and Delphi come as other types of manufacturers are reporting shortages of skilled workers as many reach retirement age. So Swonk is forecasting unemployment in 2006 to stay at the 5 percent level.

I’m delighted to bring you all this good news. And I don’t want to be a grinch, nor would I dream of outguessing the pros. But, I’d keep a little savings in reserve, just in case. You never know where that last decimal point will land. And that’s The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.



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