Economic Outlook

Near the end of last year, the Federal Reserve Bank of Chicago held its annual Economic Outlook Symposium in Chicago. More than 70 economists and analysts from business, academia and government convened to look into the future. The Chicago Fed Letter has now provided a summary of their deliberations.

As we noted in last month's issue of Spotlight, the current recession began in March 2001. The participants at the conference agreed that this recession has been one of the mildest in history. They characterized it as a "bunny ski slope." The table below shows the median values of their predictions for 2001 and 2002. Data for 2001 are based on actual results for the first three quarters and estimates for the fourth quarter.

** Percent change from a year ago
** Millions of units
Source: Federal Reserve Bank of Chicago

In the interest of full disclosure, we should note that at last year's symposium, the experts predicted a 3.5 percent increase in the gross domestic product during the first three quarters. The actual increase was only 1.5 percent for the period (and was lower still for the entire year). On average (median) members of last year's symposium predicted that business investment in fixed assets would grow by 8.9 percent. In fact, it went down by 1.3 percent. In contrast, the group predicted that consumer spending would rise by 3.5 percent, not much above the actual 3.1 percent. As the great economist Adam Smith once said: "You lose some and you win some."

The recession has taken its toll on consumer expenditures associated with the use of credit. The rate of growth of retail sales, excluding autos, dropped from 9 percent in early 2000 to about 1.5 percent by the end of last year. The report is quite optimistic about the prospects for consumer credit: "Consumers appear to have been more savvy about managing debt, competition has held down credit card interest rates, and debt service payments as a share of disposable income are not at onerous levels, despite rising steadily over the past several years."

The executive director for global markets and industry analysis of one of the Big Three auto manufacturers reported slowing sales, especially after September 11. The zero percent financing materially helped sales during October and November. However, these sales were very likely "borrowed" from sales in 2002-by his estimates between 600,00 and 700,000 units. In addition, the industry faces falling employment levels, sluggish stock markets and "tighter credit conditions." Excluding sales of heavy trucks, industry sales are expected to range from 14.7 million to 15.2 million units.

The median conclusion of the members of the symposium was that the current recession would last 11 months. Since the recession officially began in March 2001, last month (February, 2002) should have marked the end of the recession. We shall see.