A look into the economic crystal ball
Predicting the economic future can be a guessing game at times, depending on the economists you listen to. In my quest for interviews with the country’s top financial leaders, I narrowed my focus to billionaire Warren Buffet, former Federal Reserve Chairman Alan Greenspan and current Federal Reserve Chairman Ben Bernanke. It turns out Buffet was busy helping Bill Gates spend the money he left the Bill & Melinda Gates Foundation; Greenspan’s schedule was booked; and Bernanke had to attend a congressional hearing on the future of the U.S. economy.
After a countrywide search for economic experts, my efforts led me to the streets of New York City. There, I found Mr. I. C. Thefuture. When I.C. brought out his crystal ball, I knew he was a true professional. The following are excerpts from our interview.
Q: Many auto glass business owners are creating their 2007 budgets. To aid them in this process, can you tell us how the overall U.S. economy will fare this year?
A: The gross domestic product measures the value of all goods and services within the United States and is the best measurement of the country’s economic standing. According to my crystal ball, the GDP will grow at a rate of 2.9 percent, down from an earlier projection of 3.3 percent. Overall, the economy will experience slower growth in 2007 versus 2006.
Q: Why did the projected growth of the economy decline?
A: The housing sector continues to weaken. The good news is the remaining areas of the economy remain strong.
Q: My next question relates to a challenge every employer faces. What is going to happen to the U.S. job market in 2007?
A: The labor market will continue to be mixed in 2007. Unemployment rates should ease to 4.6 percent. In 2006, unemployment hit 4.4 percent—the lowest level in five years—and hourly wages increased 2.8 percent after adjusting for inflation, well above the historical average. There is current talk of raising the federal minimum wage from $5.15 per hour to $7.25 per hour. This topic should be one of the top issues for Democrats when Congress reconvenes.
Q: What do you think will happen to crude oil prices in 2007? What do you expect a gallon of gasoline will cost?
A: That’s a great question. A lot depends on who you listen to. My thoughts are that overall pricing for crude oil will stabilize through the end of the decade. The average price per barrel in the first quarter of 2007 should be around $60 and continue to decline throughout the year to $56 per barrel. This equates to an average price per gallon of $2.40 to $2.65, depending on where you are located. We shouldn’t see $3 per gallon unless international issues or terrorism spiral out of control.
Q: Inflation is a big concern. What is the Feds’ next move when it comes to interest rates?
A: Let’s look into the crystal ball. I see something, but it’s hard to make out. There it is. For a minute, I thought we were in big trouble.
The Federal Reserve did a good job of engineering the current economic slowdown during its two-year campaign to push interest rates up. If inflationary pressures continue to decline, the Feds will not need to raise interest rates, and they should remain at the current level of 5.25 percent for an extended period of time. If economic growth slows too quickly, the Feds may decrease rates near the end of the first quarter to keep the economy from slipping into a recession.
Q: How do you know we will not fall into a recession?
A: Two major things are slowing the economy: The Federal Reserve’s 17 consecutive hikes in short-term interest rates and the downturn in the housing market. These, coupled with continued corporate profit growth and low unemployment, mean consumers still have money to spend. The stock market also remains upbeat.