In the approach to its halfway point, 2010 has hit a few bumps and raised a few questions, but the year is still on track to meet expectations. Mostly.
You can still count on a few little surprises, said Rex Macey, Atlanta-based chief investment officer of Wilmington Trust. “You go into a haunted house, you expect something to jump out at you.”
A massive and thus far uncontained oil spill. A heart-stopping and thus far unexplained plunge in the stock market. A crisis in Greece that has shaken the European financial arrangement and is still unwinding.
Early this year, with the economy struggling to emerge from a deep recession, the AJC asked a group of economists to predict the economic course of 2010. This past week, we revisited those experts for an update.
They haven’t changed their minds about inflation: Not a problem, they still say. And neither do they expect the Federal Reserve to start aggressively raising interest rates soon. All predicted growth. None said it would be robust.
Still, given nearly four months more data, the economists acknowledge a tweak or two might be in order.
Rex Macey, chief investment officer, Wilmington Trust
Macey said he has not been spooked into changing his prediction of slow, uneven improvement in the economy. “In our forecast, the thinking was that we were in an economic recovery, but a fragile one.”
Fragile enough so the Federal Reserve will raise interest rates less than he had predicted. That however cements his forecast of low inflation.
He worried about later in the year, when the federal stimulus fades. “I am not a horse-racing guy, but I think that final turn will be a big one.”
Like any fortune-teller, economists love to nail predictions. But they also emphasize that it’s the big picture, not the fine-tuning to the second decimal place that really counts. John Maynard Keynes had the correct perspective Macey said. “As Keynes said, I’d rather be approximately right than precisely wrong.”
Jeff Humphreys, University of Georgia economist
“I learned long ago to never be held hostage by my last forecast,” said Humphreys. “I am sticking with my basic call that the economic recovery will be sustained, and that this will be a sub-par recovery.”
Growth will slow slightly in the second half of the year to finish with 3 percent expansion for 2010, Humphreys said.
Most worrisome, said Humphreys, is the possibility that millions of homeowners whose home values have fallen below their mortgage debt, will abandon those loans.
“If too many people walk away, then home prices will continue to decline, aborting the ongoing recovery of the single-family housing market, which of course would further test the stability of our fragile financial markets.”
Yet of the economists surveyed, Humphreys had the rosiest job forecast for the job market. Despite his concerns, he now calls for addition of 1.1 million jobs during the year.
Mark Vitner, senior
economist at Wells Fargo
One very positive surprise has been consumer spending -- two-thirds of the economy -- that has been stronger than expected, said Vitner. “It’s come back much more quickly that we would have thought, but I am afraid that it’s set up for a letdown later this year.”
The housing market has shown signs of stabilizing, while there has been improvement in hiring and an uptick in incomes. That gives more people confidence to spend rather than save, Vitner said. But it doesn’t dramatically rewrite the challenging scenario.
“We still expect unemployment to be over 10 percent this year,” Vitner said. “We still expect there will be an actual decline in employment in the third quarter. We may be moderately more optimistic. But we think it will be till the middle of the decade before we have replaced all the jobs lost in the recession.”
Rajeev Dhawan, director, Economic Forecasting Center at Georgia State University
The winter’s gloomiest job forecast — a dip of 350,000 jobs — came from Dhawan whose Economic Forecasting Center holds its quarterly conference later this month.
“I am going to stick with my other predictions,” he said. That means that he still anticipates modest growth, low inflation and a dip in the stock market, he said. But the call on jobs was too gloomy, he said. “The recovery in investment has been a surprise and jobs come with investment spending.”
What’s troubling are those surprises — the negative ones — whose impact is not yet clear, he said. “With the oil spill and the Greek crisis, the next six months are a little shaky.”
Economics class, McIntosh High
Also polled last winter were Janet Hansen’s economics students at McIntosh High in Peachtree City who had challenged the experts with their own economic analysis.
Taking a breather after advanced placement exams, they felt pretty good about predicting just an uptick of inflation, continued low interest rates and a modest rise in the stock market.
“We are surprised that so many jobs have been created in the first quarter alone,” Hansen said. “The stimulus package worked faster than expected. We as a class did not believe the money was wisely spent ... We still might be right about that, but that would mean the economy is moving back to equilibrium quite quickly on its own.”
About the Author
