UNC-CH expert says U.S. economy stays on track for 4.2 percent growth

August 10, 1999

CHAPEL HILL - Despite a recent 0.25 percent increase in what banks charge one another for short-term loans, the U.S. economy remains on track to register 4.2 percent growth in real gross domestic product for 1999, a University of North Carolina at Chapel Hill financial expert says.

"That would be the best economic performance since the 7 percent of 1984, which was the best since the 7.4 percent real GDP growth of 1959," said Dr. James Smith, professor of finance at UNC-CH's Kenan-Flagler Business School and chief economist for the National Association of Realtors. "There are still no inflationary problems in the system. The consumer price index registered no change in both May and June. That was the first time we have seen two consecutive months at zero since 1962."

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

Nationally, employment growth remains strong, Smith wrote. Probably at least once in the next three months unemployment will fall below 4 percent, perhaps to as low as 3.8 percent. The U.S. unemployment rate has not been that low since the mid-1960s.

Consumer confidence, as measured by the Index of Consumer Sentiment reported every month by the University of Michigan's Survey Research Center, remains at record levels, surpassing the old highs set in 1965-1966, he said. Record consumer confidence levels, fueled by the highest total employment and personal income levels ever seen, are keeping retail sales at new highs.

"We should see new records for vehicle and appliance sales in 1999," Smith said.

Next year, the pace of economic growth should slow to 2.5 percent, he said.

"It's a presidential election year, so we won't have a recession for any reason, including any computer problems caused by programs that think it's 1900," the economist said. "Their impact should be minimal."

Real gross domestic product will slow to 1.6 percent in 2001, Smith predicted. A recession will begin on May 16, 2002, and real GDP that year will fall by 0.3 percent.

"My scrapbook revealed a 1987 forecast of mine calling for a recession in 1990, so there is proof of my past accuracy," he said. "The recession should be mild and short, and the U.S. economy should average 3.1 percent a year of real GDP growth from 2003 to 2013.

"There should be another recession in 2013, but you have plenty of time to worry about that," the UNC-CH professor said. "Meanwhile, enjoy the wonderful economic environment of 1999."
Note: Smith, who is in France for a week, can be reached at 33-1-4329-4343. Beginning Aug. 12 his numbers will be 202-383-1184 or 919-962-3176. As time allows, he's willing to discuss most economic issues. E-mail: jsmith@realtors.org Fax: 202-383-7568.

University of North Carolina at Chapel Hill

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