Group to plot year's course

It's been said that economists are the only professionals who make weathermen look good.

• Photos

If that's truly the case, then attendees at the 15th annual Georgia Economic Outlook luncheon Friday should listen carefully and be a bit skeptical of the information they hear.

The event, sponsored by the Uni­versity of Georgia's Selig Center for Economic Growth, brings a group of regional and national economists to Augusta and other Georgia cities to share their predictions for the state's economy in the coming year. During past years, their predictions have been hit or miss.

"You're never going to hit the mark precisely, that's the nature of economic forecasting," said Jeff Humphrey's, the Selig Center's director.

For example, during last year's outlook, George Benson, the dean of the Terry College of Business at the University of Georgia, forecast the U.S. economy would grow at a rate of 3.5 percent during 2004. That estimate was countered by Mark Vitner, the senior economist for Wachovia Corp., who predicted growth of 6 percent.

The federal Bureau of Economic Analysis reported that in 2004 the U.S. economy grew at an annual rate of 4.5 percent in first quarter, 3.3 percent in the second quarter and 4 percent in the third quarter. The fourth quarter rate has not been calculated.

Unless growth soared during the final three months of the year, Mr. Ben-son's prediction likely will be closer.

Mr. Humphreys said he expects 2004 gross domestic product growth to be around 4.2 percent.

"We don't have fourth-quarter data yet, so it's somewhat of a guess," he said.

Guessing is a major part of economic forecasting. Economists base their future expectations on past information, but economic data isn't always immediately available, as was the case with fourth-quarter 2004 GDP figures. The data also is often revised several months after it is initially reported. Lack of information, revisions and rounding differences can throw a forecast off by a half - percentage point or more, Mr. Humphreys said.

The goal of the outlook is not so much about providing exact numbers as it is about giving people an idea of how the economy will move during the year.

"The actual rates, you're never going to get those exactly," Mr. Humphreys said.

For example, Mr. Vitner predicted the Augusta-Aiken area's unemployment rate in 2004 would increase from 5 percent to 5.3 percent. According to Georgia Department of Labor statistics, the area's average unemployment rate through November was 5.1 percent, meaning Mr. Vitner wasn't far off. December figures are not yet available.

One of the more glaring errors in last year's economic outlook, Mr. Humphreys said, was the effect changing interest rates had on the housing market.

The Federal Reserve bank increased interest rates five times during the year, bringing rates from 1 percent to 2.25 percent. Those increases were expected to stifle the housing market, but long-term mortgage rates stayed low most of the year, keeping the housing boom going.

Other past errors include:

- The 2003 outlook forecast that the state would add 56,400 non-farm jobs. Georgia Department of Labor figures show the state actually lost 9,700 non-farm jobs. The department originally reported 63,200 jobs were added, then revised the number to a net loss.

"That was a shock... I've never seen a revision like that," Mr. Humphreys said. "We were one of the fastest growing states in job creation in February, then in March, we were one of the worst."

- In 2002, Mr. Vitner said the country would emerge from the recession by the second quarter. The National Bureau of Economic Research, however, reported in 2003 that the recession had ended in November 2001 – two months before Mr. Vitner's forecast.

- In 2001, Mr. Benson said there was a 45 percent chance of a recession by year's end. While Mr. Benson could not have predicted the terrorist attacks in September of that year, a recession did hit, and it hit harder than predicted.

Reach James Gallagher at (706) 823-3227 or james.gallagher@augustachronicle.com.