Smoke and mirrors. Abuses and fraud. The U.S. economy, while recovering from a recession, the economic effects of the Sept. 11 terrorist attacks, and the Anthrax scare, was shrouded in corporate scandals in 2002.
In 2003, look for the U.S. economy to continue to recover at a slow pace, said Stacey Wall, an economist and investment advisor, and president and CEO of Pinnacle Trust in Ridgeland.
“After nearly three years of the most awful bear market since the Depression, the economy is growing, not like gangbusters, but growing nonetheless,” said Wall. “Corporate profits were up slightly in 2002 and should rise even more in 2003. And after a three-year slide, stocks are again fairly priced, perhaps even underpriced given today’s low interest rates and tame inflation. What’s wrong with this picture? Nothing at all, except that you could have painted a nearly identical one this time last year. Will this year’s outcome be substantially different than last or are we in for more of the same?”
Wall answered these questions and more during the sixth-annual Community Bank Economic and Market Forecast luncheon in Hattiesburg last Wednesday. He also touched on the debt crunch, stock market valuations, the bond and stock markets, war worries and the positive effects of President Bush’s proposed plan to eliminate double taxes on corporate dividends.
Last year marked the first time Wall took his annual economic forecast luncheon on the road — to Hattiesburg and Meridian. This year, he will add the Gulf Coast to his agenda. Wall is well known for his accurate assessments of national and global economic conditions to forecast trends in the economy, bond markets and the stock market, and generally has standing-room-only for his popular economic forecast talks.
“We consider this event a service to our customers and anyone else who is looking for a professional perspective on the economy to aid them in their financial planning,” said John Arledge, senior vice president of marketing for Community Bancshares of Mississippi Inc. “The luncheon has been such a big hit for years now in Jackson that we are now doing similar events in some of our other markets around the state.”
The National Bureau of Economic Research (NBER), the official body that determines expansions and recessions, reported that the current recession started in March 2001. However, even though the U.S. is in the sixth quarter of rising GDP, the NBER has been unwilling to officially state that the recession has ended, said Wall, who believes the recession ended in December 2001.
“We are nearing a moment of economic truth concerning the economy and the unemployment rate, because at this point in the 1991 expansion, jobs began to grow rather sharply,” he said. “Therefore, this is one area I would focus on over the first quarter. Based upon the current level of the labor force, to have a repeat of the 1991 expansion after a flat first year, we need to see the equivalent of 500,000 new jobs for the first quarter of this year. If we do get job growth of 150,000 plus for each of these three months, then the cyclical picture would brighten considerably.”
Even though Wall projects this year’s growth will be little changed from last year, he expects the composition to change somewhat.
“At this point, it’s hard to identify true economic growth drivers for the year,” he said. “I think a modest pickup in business spending will offset slower growth in consumption and housing. A weaker dollar should help exports, but import growth should also accelerate. And government spending will likely continue at a better-than-average rate.”
Overcapacity has affected most major industries, in the U.S. and abroad, including three that affect much of the economy in one way or another — too many cars, planes and chips, said Wall.
“The world’s automobile industry can now produce 20 million more cars than consumers can buy,” he said. “North American capacity exceeds demand by two million vehicles. For every two plants in the U.S. being closed, foreign manufacturers are building three. The good news is that this trend is sure to enhance quality and keep prices low and cars affordable.”
The combination of a failing economy and consumer fears of flying post 9/11 has resulted in a glut of jumbo jets designed for transcontinental flight, said Wall.
“Aaron Gellman, a professor and transportation expert at Northwestern University, thinks that airlines will eventually move away from the current hub-and-spoke system, and use more point-to-point routes instead. By 2006, Gellman believes about 2,000 jets with 50 to 60 seats will be in use to service such routes. The airlines are adjusting, and that, in the end, will benefit consumers.”
Trump cards in 2003 for financial markets and the economy include the threat of war with Iraq and the energy connection to a potential war in the Middle East, said Wall.
Wall also explained some of the confusion concerning stock market valuations, predicted the inflation rate for 2003, and offered best-case scenarios for escalating tensions in the Middle East.
“The best news for the market would be Saddam’s flight into exile or some other kind of peaceful resolution,” he said.
On Feb. 10, Wall will share his economic predictions for 2003 at the Hilton Hotel & Convention Center at 1001 East County Line Road in Jackson, beginning at 11:30 a.m. On Feb. 11, he will travel to Meridian, where he will address business leaders at the Howard Johnson Hotel at 110 U.S. Highway 11/80, also beginning at 11:30 a.m. On Feb. 25, he will speak at an invitation-only economic forecast breakfast at the Mississippi Coast Coliseum and Convention Center, beginning at 8 a.m.
Contact MBJ contributing writer Lynne W. Jeter at firstname.lastname@example.org</a.