UNC-CH Forecaster Says U.S. Economy Keeping Up Astonishingly Robust Growth

April 14, 1999

CHAPEL HILL - If the nation's current economic expansion lasts until Jan. 16, it will set a new record as the longest in U.S. history, a University of North Carolina at Chapel Hill financial expert says. Every day, week, month and year after that will mark an unprecedented economic event until the upturn ends.

On March 16, the expansion moved into its ninth year, said Dr. James Smith, professor of finance at UNC-CH's Kenan-Flagler Business School and chief economist for the National Association of Realtors. The 106-month expansion from Feb. 15, 1961, through Dec. 16, 1969 -- helped along by defense spending associated with the Vietnam War -- holds the current record.

"It is little wonder that nearly all forecasters of the U.S. economy are raising their estimates for growth in real gross domestic product, the total value of all goods and services produced within the United States after eliminating the impact of inflation," Smith said.

The financial analyst, credited in January by The Wall Street Journal as being the nation's most accurate economic prognosticator for the second time in three years, made his remarks in the April issue of "Business Forecast," a bimonthly newsletter he writes for UNC-CH.

On April 2, the Bureau of Labor Statistics released employment data showing that for the 12 months ending in March, average hourly earnings rose by 3.6 percent and average weekly earnings climbed by 3.3 percent, Smith said. With productivity assumed to continue increasing at the 2.2 percent 1998 rate or more, labor costs are growing at only slightly more than 1 percent, indicating inflation remains quite low.

"For those of us who concentrate on other aspects of the employment report, there really were a lot of reasons to smile and to be reassured about our upbeat forecasts," he said. "The biggest reason to celebrate was that the unemployment rate fell to 4.2 percent, the lowest since February 1970. My expectation is that sometime in the next five months we should see the unemployment rate fall to 3.8 percent, the first time to get below 4 percent since the 1961-1969 expansion."

On a seasonally adjusted basis in March, 5.78 million people were unemployed, a sharp decline from the 6.43 million unemployed a year ago, Smith said. As of last month, only 1.43 million unemployed people had been unable to find a job for 15 weeks or more.

Among people without a high school diploma the unemployment rate was 6.1 percent, a large drop from the 7.5 percent of February. Among U.S. residents with diplomas but who never attended college, the rate was 3.4 percent.

Unemployment for people with some college training but no degree was only 2.8 percent. Labor force participation among college graduates was 79.8 percent in March.

"Our unemployment rate was 1.9 percent, which meant that in the entire country, there were only 652,000 unemployed college graduates in March on a seasonally adjusted basis," Smith said. "This is reflected in the exceptionally strong demand for our graduating seniors and MBA students by employers."

The economy will remain strong for the next three years, then face a short recession lasting no longer than nine months and then grow again for another decade, he predicted.

"There is a huge need to reform Social Security now before the first group of baby boomers (all those people born from 1946 through 1964) start turning 55," Smith said. "The best plan is to gradually raise the retirement age by the mid-21st century to at least 67 if not 70, de-index the benefits from inflation and allow people under 55 to put perhaps as much as two-thirds of their income into an investment fund similar to those available to participants in 401(k) programs."

If Congress were to enact such a program this year, and it became effective in 2000, the savings rate would rise and so would investment, productivity and the economy, he said.

"Fixing Social Security in this fashion would be a huge contribution to economic growth in the 21st century," Smith said.
Note: Smith can be reached at 202-383-1184 or 919-962-3176. As time allows, he's willing to discuss most economic issues with reporters. His email address is: jsmith@realtors.org.

University of North Carolina at Chapel Hill

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