Feb. 24, 1999 CHAPEL HILL - People have called Dr. James F. Smith an optimistic economic forecaster, one who is frequently on the high side when predicting national growth and the low side when predicting inflation and interest rates.
"However, the reality of the U.S. economy in the past three years has in most cases exceeded even my forecasts," the University of North Carolina at Chapel Hill financial expert says. "The good news for me is that others have seen their forecasts turn out even further off the mark."
Last month, The Wall Street Journal credited Smith with being the nation's most accurate economic prognosticator for the second time in three years. He said he sees no reason to temper his optimism.
"You should see record sales and earnings in 1999, whatever business you're in, which should keep the economy humming right through 2000 and beyond," said Smith, professor of finance at UNC-CH's Kenan-Flagler Business School. He has just accepted a job as chief economist for the National Association of Realtors but will remain with UNC-CH as an adjunct faculty member.
That the seasonally adjusted gross domestic product for 1998's fourth quarter grew at an annual rate of 5.6 percent stunned all observers, Smith wrote in the February issue of "Business Forecast," his bimonthly newsletter. The GDP's price index grew at an annual rate of 0.8 percent, the lowest since the 0.7 percent in 1963's third quarter.
For 1998, real GDP grew by 3.9 percent, the same as in 1997, which made them the strongest years since 1984 when the rate was 7 percent, he said. A measure of inflation known as the implicit price deflator rose by only 1 percent last year, the lowest since 1959 when it also was 1 percent.
"The new consensus is forming around a 3.2 percent growth rate for 1999, well above the old 2 to 2.5 percent range," Smith said. "My view is that this is a very reasonable estimate, with a slowdown next year to 2.5 percent, then 1.6 percent in 2001, and a decline of 0.3 percent in 2002."
Employment data released this month showed the civilian labor force to be 139,347,000 people last month, he said. That all-time record represented 67.4 percent of the civilian population age 16 or older and not institutionalized.
"The labor force was probably such a large proportion of the population because just about everybody in the U.S. knows that jobs are plentiful and easy to get," Smith said. "The total number of unemployed people was 5,950,000 in January, resulting in an unemployment rate of 4.3 percent, the same rate previously achieved in April and December 1998, but otherwise the lowest since February 1970."
Six percent of the labor force, or 7.9 million people, held more than one job in January.
Also in January a survey of 600,000 members of the National Federation of Independent Business showed that a record one in five small firms planned to hire one or more new workers that month, and near-record 30 percent of small businesses reported hard-to-fill job openings.
Employment correlated closely with education, Smith said. More than 7 percent of people age 25 and older without a high school diploma and seeking work were unemployed compared with 3.5 percent of similar people who had finished high school. Unemployment among comparable people with some college was 2.9 percent and among college graduates, 1.8 percent.
The only big drag on the nation's economy is the trade deficit, which cut 1.5 percentage points off the real gross domestic product growth rate in 1998, he said. So long as the U.S. economy is much healthier than most others in the world, that deficit won't shrink, but it won't keep growing as quickly as in 1997 and 1998 either.
Smith predicts the next recession will start in May 2002 and last seven to eight months.
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