Went to lunch today with a bunch of my fellow propeller heads. It was the University of Chicago’s Booth Graduate School of Business Economic Forecast. They have done this annually since 1955 or something like that.
Sometimes it’s really insightful. Other times, the most fun is when liberal political science professor Marvin Zonis makes his political predictions. At the December 2007 lunch, he predicted an Obama Presidency.
This year they had three economics professors speaking, Randy Krozner, Austan Goolsbee and Erik Hurst. They had an additional predictions from Krozner and Professor Michael Mussa.
Real GDP-Krozner thinks 2.7%, Mussa thinks 2.4%
Real Consumer Spending-Krozner +2.8%, Mussa +2.2%
Real Private Investment-Krozner +7%, Mussa +8.8%
Real Govt Spending-Krozner -1.5%, Mussa -.6%
Real Net Exports (2005 dollars)-Krozner -$500B, Mussa -$430B
Consumer Prices-Krozner +1.8%, Mussa +2.5%
Unemployment rate-Krozner 8.7%, Mussa 8.8%
Corp Profits after Taxes-Krozner +7%, Mussa +4.5%
Personal Savings Rate-Krozner 5.5%, Mussa 5%
Federal Budget-both think it will be -$1,250B
Time will tell if those predictions will be correct or not. Last year both economists missed the market by a lot. This can be directly attributed to a lot of things. Predicting into the future is terrifically difficult for any macroeconomist of any persuasion(Classical or Keynesian). Secondly, three events in the last year shocked the economic system. One was the earthquake in Japan. It left a big mark on growth. Second was the Arab spring. The third was the European economic crisis.
Randy Krozner spoke first. He was direct, to the point and succinct. He admitted why he had failed in his predictions the year before(see above), and offered some observations for next year.
1. We will have continued uncertainty in the US, and continued strife in Europe. He doesn’t see Europe rectifying itself quickly.
2. There will be no double dip recession. We will continue on a sideways path.
3. A bright spot, inventories are thin and they need to be rebuilt.
4. A lot of growth next year will depend on the American consumer. Consumption is strong relative to consumer income.
5. We won’t have job growth because of US fiscal policy, and European challenges.
6. Business is investing in software, not in capital structures or hiring. That means more efficiency, but not necessarily growth.