Originally created 12/03/99

Economist expects healthy economy in 2000



Since 1860, the U.S. economy has taken a major dive every year ending in zero with three exceptions -- 1880, 1940 and 1950.

The fourth exception probably will be the year 2000, according to G. David Orr, First Union Corp.'s chief economist.

He told a gathering at Augusta's First Union Bank headquarters Thursday that the economy will remain healthy. However, the Charlotte, N.C.-based forecaster said the runaway growth experienced during the past two years will begin to slow in mid-2000.

The dollar will weaken, and interest and inflation rates will rise as the influx of foreign capital and cheap imports, which fueled the domestic economy during the Asian economic crisis, slowly subside.

Mr. Orr pointed to evidence suggesting the reversal has already started to happen: The U.S. trade deficit continues to widen. Home refinancing has tapered off, a result of long-term rates rising toward 8 percent. Housing construction is down 15 percent from its peak early this year.

And crude oil prices, which research shows to move in step with long-term interest rates, are on the rise.

"The tailwinds and superchargers that have helped this economy are starting to unravel," Mr. Orr said. "We're still living in the afterglow of it."

The economic slowdown will not be enough to cause a full-blown recession, Mr. Orr said during his presentation, "Optimism Tempered By Reality."

"It's still red hot, but it's not getting `red hotter,"' he said. "Most builders, if they didn't take another order today, could still build flat out for the next several months."

Commenting on the stock market, Mr. Orr said returns during the next few years will be much smaller than those during the latter part of the decade. The Standard & Poor's 500, which boasted 22 percent returns during the last two years, will probably fall between 8 percent to 10 percent during the next few years.

The reason: Interest rates have fallen about as much as they ever will.

"You can't come up with numbers that will create that situation again," Mr. Orr said.

Some have speculated the overvalued market is due for a crash, but Mr. Orr said he believes only minor corrections will occur as long as inflation stays relatively low.

He said the country's current boom period, what some have referred to as a "new era" of economic expansion, is not much different than the growth experienced between the Korean and Vietnam wars.

"This is not a `new era,"' Mr. Orr said. "Everyone was euphoric then the way they are now."

ReachDamon Cline at (706) 823-3486.