Economist predicts better forecast for ’09by Betty Beard on Nov. 12, 2008, under Edge
When you hear an economist is being honored for being one of the most accurate forecasters in the country, naturally you have ask him when will we see the end to these endless foreclosures, bailouts, triple-digit bouncing stock markets, tightwad shoppers and comparisons to the Great Depression?
Joel Naroff, a Philadelphia economist being honored in New York City Thursday , says a turnaround could come next year if consumers, banks, businesses and investors would just stop overreacting. He analyzes the economy with as much psychology as math and attempts to see past emotion, uncertainty and fear.
While he said it’s impossible to be absolutely accurate in today’s weird economy, he believes that once people start to see that things aren’t getting worse sometime next year, they’ll start shopping again vigorously.
“While there is a lot of reason to be concerned right now, I think people are overreacting to the situation,” he said. “When the psychology changes, you will wind up getting a stronger reaction in the economy than basic economic factors would argue for.”
Naroff, president of Naroff Economic Advisors, was selected by Arizona State University’s W.P. Carey School of Business to receive the 2008 Lawrence R. Klein Award.That recognizes him as having the most accurate predictions from 2004 through 2007 among 50 economists who forecast for the Blue Chip Economic Indicators published by Aspen Publishers in New York City. Naroff also will be the keynote speaker at the 45th annual economic forecast lunch sponsored by JPMorgan Chase bank and the ASU business school Dec. 10 at the Phoenix Convention Center. Naroff has also been honored as a top economist by MSNBC and Bloomberg Business News.
Here’s what he has to say about some parts of the economy.
• Housing market. When prices come back down to where they were in 2002 or 2003, wiping out the unusual run-up in prices that occurred in 2005 and 2006, the market will settle down. In Arizona, prices have dropped back to their 2004 levels, according to the Arizona Regional Multiple Listing Service, so he says we probably have about another six months of price drops to go.
“The housing market in large parts of this country is really not that bad,” he said.
One reason Naroff was so accurate about how bad the economy would get in the last few years is that he visited Phoenix in September 2005 and read a newspaper article that quoted Realtors predicting prices would continue to rise. He spotted a bubble and was able to predict what would happen when it burst.
“I really came face to face (in Phoenix) with what the excesses of the market were, and the idea that so many people thought that this housing boom could just go on and on and on. That was the start of the idea of looking at what ultimately could be a collapse in the housing market.”
But he was caught by surprise, as was everyone else, at how the mortgage mess ballooned because it turned out the risks had been spread and intertwined with financial companies around the world.
• Financial markets. A major problem in the housing market is that lenders are reluctant to give mortgages to borrowers who are a “reasonable risk. It is those people who are “the difference between a weak and a decent market.”
Still, he understands why lenders are being cautious.
“The reason is they simply can’t afford to make another mistake. Their losses were so huge and their financial situation so tenuous, they overreacted.”
• President-elect Barack Obama. Having Democrats ruling both the White House and Congress means we should see more action.
“Having a Democratic Congress, you are going to have much more aggressive action coming out of Washington D.C.. Yes, there will be mistakes made and there will be a lot of money wasted. There has already been a lot of money wasted,” Naroff said.
“We may be able to get more things done and get us going a little sooner. I’m not saying everything will be done right. It will not. But so much has to be done. Having the same party will be an advantage.”
• Unemployment rate. He predicts the national unemployment rate, which reached 6.5 percent in October, will peak at 7.5 to 7.7 percent next year. But he said no one can be certain about that because of the emotions ruling the market today.
“Businesses are doing everything they can to survive these circumstances, so we could see an overreaction,” he said.
• Next year. What is likely to happen is that the economic indicators are bound to be better than this year and start to make people feel better, Naroff predicts. If auto sales, for example, increased from this year’s expected dismal 10 million to 14 million next year, that would still be a weak market by historical standards. But it would be a 40 percent increase and possibly enough to restore the country’s confidence.