Professor predicts more employment, low inflation and a higher Dow – for now

Jan 30, 2014 by Carlos Santos
Professor predicts more employment, low inflation and a higher Dow – for now
U.Va. economist Alan R. Beckenstein made a moderately optimistic forecast at the annual meeting of the Charlottesville chapter of Darden Business School alumni, held Jan. 16.

Unemployment will fall, inflation will simmer and the Dow will pop almost 500 points by the end of 2014, according to the predictions of economist Alan R. Beckenstein, professor of business administration at the University of Virginia's Darden School of Business.

Beckenstein made the moderately optimistic forecast at the annual meeting of the Charlottesville chapter of Darden Business School alumni, held Jan. 16. During his presentation, he made clear he also expects some bumps in the road ahead.

"It's been five years since the last recession ended and 6½ since the subprime crisis," Beckenstein said. "That's a long time without a major shock. Expect something negative to happen in the next two years. We just don't know exactly what it will be."

His forecast for 2014, while certainly not bullish, is at least positive. He foresees a real GDP growth of 2.6 percent, core inflation held at 1.8 percent, an unemployment rate going down to about 6.7 percent for the yearly average and a closing Dow Jones Industrial Average at 17,050. The Dow is currently at about 16,500.

The stock market, according to Beckenstein, will continue its amazing run. But he says that despite the bull market, people still don't seem to have much confidence in it.

"How many people believe the market is going to stay there and also change their spending habits?" he asked.

Beckenstein, an economist, likes to joke about his profession while analyzing the state of the United States and world economies. "An economist is a numbers person who didn't have the personality to become an accountant," he explained to about 60 Darden alumni who attended the annual event.

Beckenstein's predictions for 2013 were near the mark on unemployment – 7.3 percent predicted compared to 7.49 percent actual – and on inflation – 1.8 percent predicted compared to 1.7 percent actual. But he was a bit off the mark in guessing GDP growth, which he opined would hit 2.4 percent. Instead it was more sluggish at 1.8 percent. His Dow prediction, like many people's, was way off. He called for the Dow to stand at 13,900 by the end of last year; instead it bulled to a whopping 16,576 points.

Beckenstein says growth was steady but slow last year in part because of the continuing effects of the structural shock – a bursting bubble – the economy underwent six years ago. Meanwhile, core inflation has stabilized and the is in a state of steady decline "and there is real job growth behind that," he said. "The number of 'hardcore unemployed,' or those without a job for a half year or longer, is high, but declining. However, skills are eroding for that group."

The debt burden of households has improved and servicing the cost of debt has been made less burdensome by very low interest rates, he said. Business savings "is quite strong" though business investment is cautious. That's because businesses are taking a wait-and-see attitude, hoping for a stabilized "policy environment" and for Europe to "calm down."

"Steady and more rapid growth prospects – and confidence in government policies – would be necessary to inspire investment," Beckenstein said.

As for Europe, Beckenstein said the European Central Bank "made an enormous commitment to defend the euro. That means it's going to last longer than it should. Sooner or later, all bad things fail; the Eurozone should not include so many disparate economies."

Beckenstein even took on health care: He said that if he had to "keep it as it is or kill it, I'd go with it."

"I prefer to see it fixed," he said. "We need compromise and improvements. The key to solving health care is to have incentives to lower risks, including preventive care. … The U.S. costs are out of control and our failure to cover many citizens is the laughingstock of the developed world. Most of the rest of the world does it better."

Explore further: US economy: Steady as she goes

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COCO
not rated yet Jan 31, 2014
excellent news Prof. - the world needs positive outlooks like this - pessimists spew real unemployment as > 30 % - with higher than average expenditures on some armed conflicts - led by a morally corrupt government beholding to themselves - so nice to see such lite at the end of the tunnel - continued success. And the NSA can take you off their list. Everybody wins.
rwinners
not rated yet Jan 31, 2014
Just one more prof....
kochevnik
not rated yet Jan 31, 2014
I already hedged my bullish positions on the euro. The number of Americans of working age NOT working is now equal to the number WORKING. Boom in USD is simple world temporary withdrawing from high-yield emerging markets. Soon they will tire of stupid 0.5% USA return. Fiat currencies are a *hit sandwich I look forward to playing garbage like the USD against real hard currencies like silver and gold. Now LAPD is training how to crack skulls in subways, and soon on the streets. Homeless are being gathered now on the streets of LA and taken to FEMA camps. In some time most Americans will be deemed criminals and processed like debt slave sausage. They will be conditioned to enjoy their Stockholm syndrome
Nestle
not rated yet Jan 31, 2014
All economists are predicting better future from good economical reasons. My perception or reality is, without cold fusion or another safe and effective source of energy we cannot expect further progress of human civilization - on the contrary. Why the experts missed the crash. Also the reading of 1, 2 is worth of context...

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