Economics

Plosser Optimistic for 2004 Economy

Plosser

There’s good reason for optimism regarding the economy during 2004, according to Charles Plosser, the John M. Olin Distinguished Professor of Economics and Public Policy at the Simon School. Basing his assessment on pronounced growth in consumption spending and, more important, business investment during the last two quarters of 2003, Plosser presented an upbeat outlook for the U.S. economy.

The outlook, delivered last December, was Plosser’s 25th annual economic forecast.

The strong rebound in investments, and a labor market where payroll employment rose for three straight months suggest that 2004 is “shaping up to be a good year,” Plosser said.

Plosser predicted real GNP growth of close to 4 percent, driven by a recovery in business investment and continued spending by consumers.

But, he said, if businesses become “overly cautious again,” then growth could become adversely affected. The unemployment rate will gradually come down, but not at a rapid pace, Plosser said, and the inflation rate will stay between 1 percent and 2 percent.

Short-term interest rates will gradually creep up as the economy picks up steam and as government spending continues to rise. While Plosser’s forecast has short-term rates rising to almost 2 percent by the end of 2004, he would “not be surprised if they went somewhat higher.”

Despite the general optimism, there are a number of economic policy issues that remain a concern to many, said Plosser.

They include budget deficits; risks of deflation; rapid productivity growth combined with slow employment growth; and the trade deficit and rising protectionism.

Download a pdf copy of Plosser’s forecast here.