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A Mississippi Business Journal Q&A

AmSouth chief economist forecasts growth in hiring

Renowned for his dead-on predictions of the national economy, Robert “Bob” C. Allsbrook, CFA, senior vice president and chief economist for Birmingham, Ala.-based AmSouth, will stop in Jackson this week to share his economic outlook with bank customers.

Allsbrook, who earned an undergraduate degree from the University of Pittsburgh and a graduate degree in economics from the University of Alabama, served on U.S. Sen. John C. Stennis’ staff for two years, taught economics at the University of North Carolina-Charlotte for six years, and was the chief investment officer and chief economist at First Union Corporation in Charlotte, N.C., before joining AmSouth in 1984.

The Mississippi Business Journal spoke with Allsbrook about his formula for calculating economic trends, the fallout from the Iraqi situation, holiday retail outlook and his views on Mississippi’s changing economy compared to the South and the rest of the nation.

Mississippi Business Journal: You’ve expressed your bullishness on the economy lately. What factors make you so optimistic?

Bob Allsbrook: We’ve never before in history seen economically what’s happening now. One, the basic fundamental economy is growing faster than average and should continue for quite a while. At the same time, we’ve never had such stimulative government economic policy with all three arms of government policy turned up full blast. Monetary, fiscal and currency policy are also turned on strong. Together, the economy’s growth rate will stay above average for quite a while.

MBJ: I’m interested in the “quite a while” portion of that statement. Could this growth cycle last as long as the last one?

BA: Oh, I don’t know. The last one was the longest in history and occurred because of a unique historical event: American manufacturers decided to use computers to make things and, at the same time, new technology was available. That was about 1994 and 1995. It propelled all the productivity and allowed the government to keep stimulating. I don’t think you can have that kind of thing happen again to that degree, so I wouldn’t look for another 10-year expansion period. But certainly we have at least a couple years to go in this one, at average or above-average growth.

MBJ: You have a unique way of calculating forecasts. You use all the same inputs as other economists, but what else do you do?

BA: I do it the easy way with no risk, I just listen. I’m exhausted from listening. I spoke with nine different audiences last week in middle Tennessee. I really emphasize that I want to hear whether they agree or disagree, based on their own business and consumer experience. The best part is when people have something hot to say. They may come up afterward and whisper quietly what’s going on. We discovered 10 years ago that we had a tremendous asset sitting right in front of us as a bank, in contrast to a Wall Street firm. Wall Street economists don’t get to talk to people like we do. We get all the same numbers at the same time, using all the same electronics. I decided: why does the world need another economic model that’s going to be wrong anyway? What can we do that makes a difference? As Yogi Berra said, ‘It was so obvious, it was hard to see.’ We just listen and we have found that doing so leads the numbers invariably by about two months. It’s very helpful and very reliable.

MBJ: What are you hearing most often right now?

BA: Well, starting in the fall season, companies and employment agencies consistently and in large numbers sent out orders to start looking for people to hire, starting sometime after Christmas. I haven’t heard that in many years. The labor market looks to be better than the numbers, and it picked up a little bit in September, but I don’t think that has anything to do with it. I do feel very strongly that we’re going to see improving employment conditions after Christmas. Companies are getting ready for it. I have so much confidence in that statement because I’ve heard it so much from people who are spending money on that basis. None of my peers in New York or Washington will agree with that prediction because they haven’t heard it yet.

MBJ: Has the lack of employment strength been due to the unusually high productivity and vigorous pursuit of keeping inventories lean and in check?

BA: That’s right. The reason productivity is so high is because technology is available and it provides a way to compete with foreign competition. Unfortunately, in Mississippi, we haven’t figured how to do that with low-skilled textile and furniture jobs. In high-tech manufacturing, it fits very well. That’s why we haven’t had to hire workers. If you look at the productivity charts, we’ve had about three years of historical highs and growth in productivity, and as the Federal Reserve has said in its ‘Beige Book,’ the American workforce can’t work much harder. There are only so many hours in the day.

The second point is that inventories are virtually at an all-time low, compared to most times this long after a recession where they’d be at an all-time high. That’s inventories relative to demand. Demand is growing, the workforce can’t work any harder and we know new orders are picking up sharply from the numbers and anecdotal information since Labor Day. What that implies is yes, output is going to improve between now and Christmas, but we are at the point, as the Fed agrees, where we’ve got to get our workers to raise output to move forward. We can only squeeze so much after growth and productivity and the Fed agrees we’re doing that right now. I tend to think in images and I see a balloon getting tighter and tighter and the give on it is going to have to be a pickup in employment. Why won’t companies do that now? Because they have a critical need to emphasize profits in the third and fourth quarters of this year since they’ve been lagging for so long. We’ve been arguing for weeks that third quarter profits are going to surprise people on the high side. That, of course, will be good for stocks, also.

MBJ: What concerns are you hearing about from Southern business people?

BA: The South really leads the U.S. by about a month or so in the business cycle, so southern business people can tell us what’s going on. And right now, they are really focused on jobs. Next is the Iraqi situation.

MBJ: Concerning the Iraqi situation, what about the deficits we’re incurring and the resulting debt?

BA: As the Fed has said very clearly — which is extraordinary for the Fed to speak so clearly, particularly on the deficit, which is not their prime focus — that the deficit is a good thing in the short run, and we’re going to have to deal with it in the long run. They said it’s something we’re going to be better off to do now than not, and that pretty well makes sense. There are a lot of assumptions out there about it, but it’s more a matter of coin tossing than real estimates. Given the alternative, it’s better to run the deficit right now. It’s also important to realize that, even though we’re talking about a $380-billion deficit for the fiscal year just ending, and a $500-billion one in the new fiscal year, but relative to the size of the economy, that’s not as large as it was back in 1992, when we had a $300-billion deficit. In the long term, we can handle it if we get the growth. I would argue that if we don’t have the deficit, we certainly won’t get the growth.

MBJ: The Fed has repeatedly warned about deflation. Is that realistic?

BA: It’s amazing, isn’t it? I think it’s nonsense and I’ve told the Fed that publicly. Everywhere I go, I keep a list of things consumers tell me they worry about — prices climbing, for example — and th
at l
ist gets longer, not shorter. The University of Michigan published a series of surveys about what consumers think is going to be the inflation rate over the next 12 months. Right now, it’s up from 2.4% to 2.9% in


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