Anderson Forecast predicts brief recession, slow recovery

  KEITH ENRIQUEZ/Daily Bruin Senior Staff Peter
Navarro talks about the post Sept. 11 economy.

By Teri H.P. Nguyen
Daily Bruin Contributor For 50 years, the UCLA Anderson Forecast
has been on the money. Since 1952, the forecast has provided
relatively accurate economic predictions of California and of the
nation. On Wednesday, it celebrated its 50th anniversary as a
nationally acclaimed economic barometer. They celebrated with a
nice dinner with guests from around the globe ““ and they
affirmed that the nation is, indeed, in a recession. Though this
recession will be brief and mild, the recovery will be weak and
slow due to weak expenditures and the lack of innovations, said
Edward Leamer, director of the forecast. Senior economist with the
UCLA Anderson Forecast, Christopher Thornberg also said that the
Sept. 11 terrorist attacks will not destroy the economy, and that
the impact will be brief. “Politically (the attacks) were
momentous, emotionally it was momentous, but economically there
won’t be much of an impact,” he said. If their past
record means anything, the downturn will likely be mild, as
Anderson predicts.

“Less wrong” for 50 years The Anderson Forecast
holds quarterly conferences reviewing and forecasting the economic
condition of the national and state economies. “Forecasts are
guaranteed to be wrong, but we are less wrong than anyone
else,” Thornberg said. “It’s not so much a future
prediction, but what is going on.” And “less
wrong” they have been. According to data reported from the
U.S. Commerce Department in August 2001, the Anderson Forecast has
presented a precise prophecy of real gross domestic product for the
United States during the previous three economic quarters. Anderson
forecasters predicted the U.S. economy would experience an annual
growth rate of 0.7 to 0.2 in the first and second quarter of 2001,
respectively. When the Bureau of Economic Analysis released the
statistical data, these predicted trends closely reflected national
GDP growth rate: U.S. growth rate fell from 1.3 to 0.2 in the first
and second quarter. Leamer and his team were the first to predict
the current recession while other forecasting agencies were misled
by what Leamer termed the Internet Rush from 1996-99. Providing
accurate predictions requires more than number analysis, though
economic models and trends help, Leamer said. Making precise
forecasts is “90 percent insight and intuition and 3 percent
using models,” Leamer said. “What these Wall Street
analysts do not have is wisdom and insight.” Leamer said his
wisdom and insight comes from his many years of teaching and from
the challenging questions and bad evaluations he received early in
his career. “I went from being a bad teacher to winning a
teaching award,” Leamer said. “Teaching, research and
service should go hand in hand; each are excellent forms to gain
wisdom and insight.” But in addition to intuition, both
Leamer and Thornberg said taking an episodic approach puts the
Anderson team at an advantage over other forecasting agencies that
follow a more linear approach to the economy. Anderson Forecasts
view the economy in episodes, comparing two particular periods and
searching for a trend. This method, as opposed to relying
exclusively on statistical-models, tends to work better, Leamer and
Thornberg said. “The key is not just reporting a recession,
but in providing insight into understanding the future,”
Thornberg said. And it has worked for the Anderson Forecast since
it was founded by professor Robert M. Williams in 1952. “This
is 50 years of hindsight,” said Tom Lieser, senior economist
with the forecast. “Insight, with careful hindsight comes
foresight.” California Gov. Gray Davis recognizes the
importance of these UCLA economists when he declared June 23, 1999
“Professor Larry J. Kimbell Day,” to honor the retired
Kimbell, former director of the Anderson Forecast and professor of
economics at UCLA for 25 years. “Year after year, the
Anderson Forecast has proven to be a valuable economic indicator of
California’s future economy,” said Bryon Tucker,
Davis’ deputy press secretary.

A global forecast Beside the forecast, Wednesday’s
conference focused on California’s role in the world economy.
Titled “California in the Global Economy,” the
conference discussed key global issues regarding economic
situations in Europe, Japan, Korea, China and the Americas,
followed by a microeconomic look at each country’s businesses
and firms. Forecasters also discussed impacts of the Sept. 11
attacks. Though the terrorist attacks depleted the tourism and
travel industry, Leamer said security measures at the Los Angeles
International Airport are not helping. “Since LAX is the
entrance into this Southern California, we need to make LAX warm
and inviting to tourists; it needs to be secure, not
alarming.” Former forecast director Larry Kimbell presented a
more pessimistic perspective than the one offered by UCLA. Kimbell
forecasts the worst stock market outcome in the next decade since
the Great Depression. Despite pessimistic outlooks for the economy,
Leamer acknowledged that there is still cause for celebration.
“This conference is celebrating globalization where people
can get together to discuss openly about the economic situation.
Sept. 11 should not be taken as a defining moment” for the
global economy, he said.