ALBANY — A year after giving a mixed and cautious economic forecast for 2020, and nine months after COVID-19 rendered it moot, economist Hugh Johnson said Thursday that he’s never seen such promising indicators as he does now for 2021.
Johnson offered his insight to a virtual crowd of hundreds via the Capital Region Chamber. The founder and chief investment office of Hugh Johnson Advisors has gained a regional and at times national audience with his commentary and analysis over the decades, and has been providing the forecast here for nearly a third of a century.
In those 32 years, nothing has matched 2020.
Johnson said Thursday he likes to tell a joke before his forecast.
“It’s unfortunately sometimes difficult to tell which is the joke and which is the forecast,” he said.
He ran down the list of all the 2020 predictions he gave in 2019, which all missed after the series of indicators he was handicapping nosedived during a partial shutdown of the economy.
“Forecasting is very difficult under the best of circumstances,” Johnson said. It’s more difficult when the economy is at an inflection point, he added, which is exactly where he thought the nation was in December 2019, after years of strong growth.
“Never before in my 31 years of talking to you have I had such an enormous amount of reservations, of concerns, of worries,” he said in 2019.
A black swan event or exogenous factors such as a worldwide public health crisis can skew everything, he added Thursday. And so it did.
The economy briefly collapsed in early spring but has rebounded sharply for six months since.
“Things are very different this year. I’m extremely optimistic,” he said Thursday.
Johnson offered several reasons why he’s so optimistic on 2021 and even 2022:
- The traditional bull-market stocks are outperforming the traditional safe-haven stocks of a bear market.
- The yield is narrowing between various grades of investments.
- The yield curve for the last six months indicates a steadily decreasing likelihood of a recession in the next 12 months.
- The leading economic indicators are up for six straight months.
- Inflation is low and should remain low because of monetary policy and economic factors; if it climbs above the 2 percent target, the Federal Reserve has tools to hold it in check.
- Multiple factors in 2020 mirror those in 1920, at the start of the Roaring Twenties, a period of strong growth.
- Bank lending, money growth and liquidity all are strong.
- Job growth will be steady as the many people still out of work due to COVID get back in the workforce.
“This is almost picture-perfect,” Johnson said, possibly the best combination of positive factors he’s ever seen.
All is not perfect, Johnson clarified, but in the short term, the imperfections are far outstripped by the positive signs.
Some factors with negative implications:
- From 2019 to 2020, the federal budget deficit jumped 235 percent in dollars and 248 percent as a percentage of gross domestic product. It is now 16 percent of GDP, a level not seen since World War II. Borrowing is cheap now but when interest rates rise, this level of debt is a problem.
- The recovery is losing pace because so many people are still unemployed — more federal stimulus is needed, and the $900 billion being discussed in Congress isn’t enough.
- Several metrics never recovered from the Great Recession of the late 2000s — annual growth of the economy, population, labor force, number of jobs and worker productivity were all significantly weaker in 2009-2019 than in 1980-2009, as was the workforce participation rate.
- Unemployment rates won’t fall to pre-pandemic levels until early 2023.
- The Albany-Schenectady Troy Metropolitan Statistical Area will end 2020 with 35,000 jobs and regain only 29,000 of them in the next two years if predictions hold — 17,000 in 2021 and 11,000 in 2022.
Some businesses that are just hanging on in 2020 may fail, Johnson said, and patience will be needed as time, science and policy help rebuild the economy.
“I understand that’s easier said than done,” he said.
Such predictions sometimes don’t pan out as expected.
On a fast computer with a good internet connection, a Google search for “economic forecasting accuracy” takes 0.39 seconds to yield 24.8 million results, give or take.
Titles include “The worst except for all the others,” “Why Economic Forecasting Has Always Been A Flawed Science,” “8 Charts That Prove Economic Forecasting Doesn’t Work” and “Why Economists’ Predictions Are Usually Wrong.”
In one of its periodic reports on its own forecast accuracy, the Congressional Budget Office last year said its large errors tend to reflect the same challenges all forecasters face.
But the alternative to economic forecasting is guiding a $21 trillion U.S. economy with guesswork. So economists remain employed.
Each year in his forecast, Johnson presents a report card showing the accuracy of his previous year’s predictions. Some are dead-on, some are close, some are way off. He often explains the misses — after so long in the business he can see how they diverged from his expectations.
Thursday’s report card on the 2020 forecast was abysmal but that was to be expected, as Johnson and his colleagues in late 2019 couldn’t predict the crisis that arrived in early 2020, nor its effect on the economy, nor the economy’s quick rebound.
Here’s a look at how he has fared in past years, with predicted numbers followed by official final numbers. (Some metrics were not forecast in some years.)
NATIONAL UNEMPLOYMENT RATE
2012: Predicted quarterly rate of 8.7-8.9%, actual monthly rate of 8.3-7.7%
2013: 7.9-7.5%, 8.0-6.7%
2015: 5.7-5.2%, 5.7-5.0%
2017: 4.8-4.7%, 4.7-4.1%
2018: 4.1-3.9%, 4.1-3.7%
2019: 3.4-3.5%, 4.0-3.5%
Source of official numbers: U.S. Bureau of Labor Statistics
S&P 500 STOCK INDEX
2012: predicted range of 1228-1310 through four quarters, actual range 1277-1465 through 365 days
2013: 1412-1435, 1457-1848
2014: 1755-1893, 1741-2090
2015: 2045-2105, 1867-2130
2017: 2142-2204, 2257-2690
2019: 2924-2972, 2447-3249
Source: Finance industry databases
GROWTH RATE, U.S. REAL GDP
2012: Predicted 2.1%, actual 2.2%
2014: 2.6%, 2.5%
2015: 3.0%, 3.1%
2017: 2.4%, 2.3%
2018: 2.7%, 3.0%
2019: 2.7%, 2.2%
Source: U.S. Bureau of Economic Analysis
EXISTING AND NEW HOME SALES
2015: Predicted nationwide sales of 5.1 million existing homes and 578,000 newly built homes, actual sales of 5.3 million existing and 503,000 new
2017: 5.5M/570K, 5.3M/616K
2018: 5.6M/547K, 5.3M/614K
2019: 6.1M/689K, 5.33M/685K
Source: National Association of Home Builders
U.S. CONSUMER PRICE INDEX INCREASE
2014: Predicted 1.8%, actual 1.6%
2015: 2.0%, 0.1%
2017: 2.5%, 2.1%
2018: 2.5%, 2.4%
2019: 2.5%, 1.8%
Source: Federal Reserve Bank of Minneapolis
U.S. HOURLY EARNINGS GROWTH
2018: Predicted 2.7%, actual 3.0%
2019: 2.9%, 3.3%
Source: Federal Reserve Bank of St. Louis
GROWTH IN WORKFORCE, N.Y. STATE
2012: Predicted 1.1%, actual 1.0%
2013: 0.8%, 1.5%
Source: New York state Department of Labor
ALBANY METRO EMPLOYMENT GROWTH RATE
2012: Predicted 0.3%, actual 1.3%
2013: 0.2%, 0.1%
ALBANY METRO UNEMPLOYMENT RATE
2012: Predicted 7.2%, actual 7.3%
2013: 7.8%, 6.3%