Cover Story: Where To Invest '96: The Framework: Business Outlook
EXPECT A SO-SO '96 IF MUNRO IS ON THE MONEY AGAIN
Almost all of last year's crystal-ball gazers correctly forecast continued expansion in 1995, but projecting healthy growth along with falling interest rates was a feat accomplished by just a handful. The most accurate of last year's 50 was David C. Munro, chief domestic economist of High Frequency Economics Ltd., a consulting firm in Valhalla, N.Y. For the second year in a row, economic consultant Morris Cohen placed second, with David Resler of Nomura Securities International Inc. rounding out the top three.
Munro says that a 1995 forecast of 2.5% growth in real gross domestic product, measured by the old 1987-dollar, fixed-weight method, was an easy call because "policymakers were focusing on sustainable growth," thought to have been 2.5% based on the old GDP. At the same time, Munro believed that several factors would hold down inflation and interest rates. His rationale: "Corporate restructurings have been unlike anything we have ever seen. Corporations in 1995 were trying to make profit targets by controlling costs, not by price markups." And, he says, consumers turned more hawkish about accepting price hikes.
HEARTLAND PRAGMATIST. Because Munro views these factors as shifts in the structural makeup of inflation, he says that consumer prices will rise 2.7% in 1996, about the same as in 1995. He also expects increased consumer spending, more homebuilding, and stronger exports, so real GDP will grow 2%, considered by some to be the fastest noninflationary rate possible under the new chain-weighted method. Inventories, which swung sharply in 1995, will rise more smoothly. Munro's forecast is almost smack-dab in the middle of the latest survey (page 65), making his an average '96 forecast.
What does make Munro unusual among chief economists is that he lacks an advanced degree. Instead, he says, he "toiled as an apprentice in applied economics" at the Council of Economic Advisers, working his way up to senior staff economist before switching to General Motors Corp. and then joining High Frequency four years ago. Learning by doing has made the Midwest native "a pragmatic analyst" who doesn't kowtow to any particular economic school of thought. As Munro will likely agree, accuracy--not ideology--is what matters.By Kathleen Madigan in New York