A Happy New Year?

Experts weigh in on whether 2004 will be the year the economy turns around.
Magazine Contributor
7 min read

This story appears in the December 2003 issue of Entrepreneur. Subscribe »

Due to our magazine production cycle, these four economic experts were originally interviewed in September 2003 for this article. In order to provide you with their latest predictions, we talked to them again in November. Following their original statements are their follow-up comments.

Ken Goldstein, Economist, the Conference Board Inc.
"At the midpoint of 2003, we finally saw the transition from consumption alone to consumption plus investment. Next year, we'll see a continuation, a pickup in investment, along with a continuation of reasonably strong consumer spending. Some inventory rebuilding will be added to the mix as well, not at the beginning of the year, but perhaps in the first half of the year.

"The number most people are most concerned about is jobs. As a whole, we're probably talking in the range of about a million new jobs for 2004-which is pretty damn good news considering where we've been. The problem is, what happens once you get beyond 2004 and into 2005? But at this stage of the game, people will take a million new jobs even though it doesn't begin to make up for the 2.8 million jobs we've lost. Of course, this is largely independent of what may or may not develop [in the Middle East]. Nobody really knows."

"The two questions people had this time a year ago were 'Where are jobs gonna go and where is investment gonna go?' I think the only difference here is that it seems to be clear that investment has started to recover and that means there's only one question left: 'When are jobs going to start to come back?'

"The Federal Reserve is not going to raise interest rates until it's clear that we not only have an economic recovery but we've got a labor market in recovery. And if we don't have a labor market in recovery we're just not going to see higher short-term interest rates out of the Fed.

"I think we're probably not going to suffer a let-down in consumption at this stage of the game and it looks like investing is going to continue at pace. So the last big question is [not] whether the labor market [will] recover, but when? I don't think we're more than a few months, at the most, from when we can start talking about not when but that it's already starting. So I think that's one of the big differences between now and a year ago."

Hans Timmer, manager of global trends, The World Bank Group
"We expect a moderate recovery in what we call the rich countries, OECD [Organization for Economic Co-Operation and Development] countries [such as Germany, France, Japan, the United Kingdom and the United States]. The signs are already there in the United States and Japan, but, as I said, it's moderate. On average, 2.5 percent [GDP] growth for the OECD economy is still significantly below what they achieved before the downturn in 2000, and it will not be enough for a sharp reduction in unemployment.

"The big worry we have with the OECD economy is that macroeconomic stimulus has run its course, so if there are new shocks to the system, there's not a lot of leeway for governments to stimulate the economy."

(Hans Timmer couldn't be reached for our follow-up interview. But co-worker Mick Riordan, senior economist for The World Bank, agreed to weigh in.)

"Since we published our forecast in September of this year, there have been a number of growth surprises within the industrial countries. The first is the U.S., of course, with the 7.2-percent third-quarter number [GDP growth]. It's nicely balanced, although the surge in consumption is probably unsustainable, but may come in turn with investment spending. At the same time, we had a surprise in Japan for the second quarter where GDP rose to a 3.9-percent annual rate. Again, [this growth was] under-pinned by strong investment and exports. Those sorts of figures were unexpected first for Japan, second for the U.S. At the time we did our projections, we didn't have data covering third quarter figures sufficiently for the U.S.

"I think there's a third upward growth surprise in China. China is 8.5 percent through the first three quarters of this year.

"The fourth surprise is the high-tech cycles have really turned sharply upward as of just the last few months. We're seeing [international] sales of semiconductors with momentum growth of about 40 percent. Part of the bust that put us into this period of the slow growth was the downturn in the high-tech sector--the equity markets, the production layoffs and a slacking demand for tech intensive goods--and we're seeing that turn around very sharply.

"In the U.S. particular the last couple of monthly job reports are encouraging. I think the job outlook although at 100,000 a month isn't sufficient to make significant in-roads--we've already found a tenth of a point dip in October--these are all positives moving forward."

Edmund A. Mennis, Independent Investment Management Consultant
"The outlook for 2004 depends on four intertwined economic and political issues: 1) The economic recovery in the United States, which has been consumer-led and fueled by record low-interest rates and tax incentives. Also, business spending has been sluggish; the surge in productivity and corporate profits can be attributed largely to substantial job losses. 2) Iraq, where a quick military victory has been followed by persistent U.S. casualties, mounting costs and no clear plan to end the conflict. Other international problems include India-Pakistan, Israel-Palestine and Korea. 3) The twin deficits, federal and trade, both of which are financed by borrowings from individuals, corporations and governments overseas. 4) Presidential elections in 2004, which may result in a significant shift in both domestic and international priorities.

"Until such results are more assured, uncertainties will plague the economy and the financial markets."

Mark Zandi, Chief Economist, Economy.com Inc.
"We should expect to see a steady improvement in the economy through 2004, supported by tax cuts, low interest rates and robust productivity growth. I say that with very little certainty. The key to that forecast is jobs-we need to see some job growth soon. If we don't, next year's economy will be less upbeat than what I'm anticipating.

"All the preconditions for a pickup in jobs are in place except for one thing: business confidence. Businesspeople seemingly lack those animal spirits necessary to create jobs. If history is any guide, they should step up and be more aggressive in the next couple of quarters.

"Under the most likely scenario, this economy should gain momentum. We've experienced a period of sluggish growth, certainly not growth that's sufficient enough to generate jobs, but growth nonetheless. And I expect we'll see much better conditions next year with much stronger growth. We're at the tipping point, and we will see the economy move into a higher gear."

"I'm more optimistic about 2004. Jobs rose strongly in October. The Bureau of Labor Statistics revised up its estimates of job growth in September and August. So it looks like we've been creating jobs since August. So, the missing economic link was jobs and I think we've found it. I'm very encourage by the numbers. I think the job market is clearly headed in the right direction and I think 2004 is shaping up to be the best year since Y2K."

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