This is an interesting forecast that dovetails fairly nicely with my “Frankenstein Economy” thesis. The UCLA forecast is a bit of an outlier, with most economists looking at very fast growth rate of 5-6%. Even thought on on the low end of the range, I’m still less bearish than Edward Leamer (director of the UCLA Anderson Forecast) by a full % point — I’m expecting U.S. GDP growth of 3.5% – 4% for 2004 — while he expects an anemic 2.5% – 3%.

Leamer has a terrific track record, and I wouldn’t be so quick to dismiss his call as an outlier. If his prediction turns out to be even close, it would have a significant impact on the 2004 Presidential contest.

The obligatory excerpt:

The U.S. economy will grow modestly next year, keeping the unemployment rate stuck near 6 percent and the Federal Reserve on hold as it watches for any inflationary pressure from a weaker dollar, according to a closely watched forecast released on Thursday.

Edward Leamer, the director of the UCLA Anderson Forecast and one of the first economists to flag the most recent recession, said the sustained surge in U.S. growth next year that some Wall Street analysts expect will not emerge. Instead, the economy will grow at a rate of 2.5 percent to 3 percent in 2004, rather than the 4.5 percent to 5 percent pace typical of normal rebounds from recession, Leamer said. That slower growth, the result in part of the pressure on household balance sheets and local government budgets, will not do much to lower the unemployment rate, he added . . .

‘TWILIGHT ZONE’ ECONOMY: Leamer noted that a number of factors are making the outlook for the U.S. economy hazy and difficult to forecast. Higher productivity made the third quarter “feel like a Twilight Zone episode” as a blistering 8.2 percent rise in the economy was paired with a weak job market, Leamer said. “The data are so unusual with all that economic growth and no employment,” Leamer said. “It’s some kind of mysterious force out there delivering products to our door.”

For instance, there is reason to expect a pullback in spending by consumers as well as state and local governments will emerge as drags on the economy, Leamer said. Consumers have bought enough cars and houses to last for some time, and they “need to begin to repair their own troubled balance sheets,” Leamer said. Meanwhile, productivity gains of recent years and stimulus from tax cuts may run their course next year, he said.

Source:

The UCLA Anderson Forecast

U.S. growth seen about 3 pct in 2004-UCLA forecast
Reuters, 12.11.03, 3:59 AM ET

http://www.forbes.com/work/newswire/2003/12/11/rtr1177254.html

Category: Finance

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