Wednesday, October 3, 2007
James F. Smith (EconForecaster)
Dr. James F. Smith is the Chief Economist for Parsec Financial Management, Senior Fellow and Director, Center for Business Forecasting, Kenan Institute, University of North Carolina and Professor of the Practice, Institute for the Economy and the Future, Western Carolina University, in addition to his own economic forecasting website and blog.He has also been writing a quarterly economic outlook newsletter (subscription) for the last two decades, in which he provides detailed analysis of local, regional, national and international economic issues.
Education: B.A., M.A., and Ph.D., Economics - Southern Methodist University, Dallas
Career: Chief Economist, Parsec Financial Management, 2006-Current
Professor of Finance, Kenan-Flagler Business School, 1988-2006
Director and Chief Economist, Bureau of Business Research, University of Texas, 1986-1988
Chief Economist, Union Carbide Corporation, 1980-1985
President's Council of Economic Advisers, April-May 1981
Director of Credit Research (Last Position), Sears, Roebuck and Company, 1965-1980
Senior Economist, Mortgage and Consumer Finance Section, Division of Research and Statistics, Board of Governors of the Federal Reserve System, 1975-1977
In addition, Professor Smith has been a prominent member of the forecasting panels for Bloomberg, Business Week and Federal Reserve Bank of Philadelphia. He was formerly a President and part of the board of directors for the National Association for Business Economics (NABE) and as a chief economist for the Society of Industrial and Office Realtors. His economic forecasts are widely quoted by USA Today, the Wall Street Journal and financial media publications worldwide. He is also a prolific speaker, with speaking engagements nationwide and across Europe and Asia.
Editor's Note: Last week, we published a profile and comments from Dr. Thornberg, in which he predicted a recession around the corner. I contacted Professor James F. Smith to get an opposing viewpoint, since he is famously bullish on both real estate and the overall economy. Luckily enough, he is about to give a major speech on the outlook for the U.S. economy to Swedbank Global Business Outlook at Stockholm, Sweden. He sent me a draft copy of his speech, including detailed arguments, with meticulous data and charts, which support his viewpoint. Provided below is a summary of his response to my question (refute notions of an impending recession) and excerpts from his upcoming speech.
My prediction, spelled out below, is that we’ll get through our current problem and see the expansion continue until at least 2010. Despite all the gloom and doom talk in the media and on Wall Street and the poor “Employment Report” released by the Bureau of Labor Statistics (BLS) on September 7, the reality is that the U.S. economy is still growing, albeit at a level well below its potential. There is nothing wrong with the U.S. and Euro Zone economies that lower interest rates won’t cure.
Over the past 106 years, whenever the three-month Treasury bill has had a yield higher than that of the ten-year Treasury note and that inversion has lasted for four months or longer, a recession has always followed. That signal happened before 17 of the 21 recessions since 1902 and it usually preceded the onset of the recession by 11-13 months.The Treasury yield curve was inverted from July 2006 to June 2007. That should have meant a recession would have begun in the May-to-July period this year. That was indeed my forecast until all the incoming data made it clear that there was no sign of a recession.
There is no question that the declines in U.S. housing activity will continue for some time with serious economic repercussions. However, it is almost certain that the biggest economic impacts are behind us. Total residential investment in real terms was a record $597.1 billion in 2005. That was 5.4 percent of real GDP. In the second quarter of 2007, total residential investment had fallen to a seasonally adjusted annual rate of $491.0 billion or 4.3 percent of real GDP. While the total decline in residential investment from 2005 to June 30, 2007 has been $106.1 billion or 17.8 percent, the drop in its share of GDP has been only 1.1 percentage points. This is why housing is unlikely to cause a recession by itself.
The subprime mortgage problem is probably wildly overblown. Subprime mortgages are estimated to make up no more than $500 billion of the nation’s total $9.8 trillion of mortgages. Furthermore, at most $100 billion of these subprime mortgages are expected to default. This is not big enough to cause the turmoil that we’ve seen in global financial markets, suggesting that investors are overreacting.
The threat of a near term US recession is past. It should have happened in the second quarter, but did not. Now the best bet is in 2010.
That was Professor James F. Smith (http://www.econforecaster.com/), and Chief Economist for Parsec Financial Management, NC. Please note that his comments and the data provided above are only a small part of his overall speech, and if you want to read or listen to the full speech, you would either have to catch a plane to Sweden or consider signing up for his subscription.
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