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Shape Shifters

Top economists tinker with their projections for 2011.

Nine months ago, CFO asked a number of leading economists to put themselves on the line — or the V, or U, or W, as they saw fit. That is, we asked them to predict the shape, literally, of the recovery (if any), and their collective response yielded one of the most popular articles we published all year. (See “The Shape of Things to Come,” March.)

So it seems only fitting, as we look ahead to 2011, that we revisit a few of those fearless prognosticators to see if they stand by what they said then, or want to offer something that every CFO can relate to — a revised forecast.

While some made minor revisions, each is essentially sticking by what he said. What makes that particularly interesting is that now, as then, the predictions about the fate of the economy vary wildly. The intervening nine months have done virtually nothing to create a convergence of opinion, which calls to mind the George Bernard Shaw aphorism: “If all economists were laid end to end, they would not reach a conclusion.”

Economists tend to be, depending on your point of view, touchy or precise. When we asked them to vote for the shape of the recovery earlier this year, for example, a few refused to pick a letter (and there were, after all, 26 to choose from) and instead described other shapes. One picked a check mark, while another selected a square-root sign. Talk about data visualization.

As we did in March, we present our intrepid panelists’ opinions in descending order based on their level of optimism, an editorial trick designed to make sure you don’t stop reading too soon.

Bio & 2011 economic projection from Bill LaFayette

Slow Recovery, but Things Are Getting Better

I think I was right in picking a check mark the last time, but I have to believe the guy who picked the square-root sign [Ernie Goss of Creighton University, see below] was closer to describing the shape than I was. Back then we saw a bit of a pop from the stimulus package, which is now attenuating. If you dig below the surface of the GDP numbers, you see that growth is becoming internalized. What I mean by this is that we’re seeing much slower growth and not the big jumps we saw from the stimulus package.

Stronger consumer spending and bigger investments by businesses, especially in equipment and software, are driving the incremental growth we’re seeing. Obviously, people and companies are taking advantage of the low-interest-rate environment. One problem is that credit standards are still a hair too tight, not surprising since they were probably too low before the crash.

Many forecasters expect that we are going to experience slow, steady growth in the upper 2% range, like 2.7%, by the middle of next year. This still isn’t what we want to see, but it’s a far cry better than the economists who were predicting a double-dip “W”-shaped recession a few months ago. We were worried last spring about the euro and the debacle in Greece, but the latest bits of information on these economies indicate they’re pulling things back together.


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