Quarterly Business Report: As Good as It Gets

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We should be drinking champagne every day to celebrate these times!" asserts Allen Sinai. But he and the other members of TIME's Board of Economists add a caveat: Don't wait to pop the corks. The economy right now is as good as it gets, perhaps the best in American history, Sinai claims, with little disagreement from his colleagues. However, it will start coming down off this giddy high very soon--maybe this summer. And fears are growing that the trip down could be bumpy.

Not that anyone foresees an actual recession--at least not before the year 2000 (known as Y2K to computer programmers, who are racing to make their electronic brains distinguish that year from 1900). In the majority opinion of TIME's board, which convened recently in Manhattan, the U.S. economy should continue growing over the next year and a half at somewhere between 2% and 3% annually. That is below the sizzling 3.7% of 1997 and the phenomenal 4.8% of this year's first quarter, but near--maybe a bit above--what used to be considered sustainable for the long haul.

For workers that is a bad news-good news forecast. Unemployment will rise from the 28-year low of 4.3%, touched in April, to perhaps 5% next year. But employers will still be beating the bushes for every worker they can find, if a bit less feverishly than today. And wages will be pushed up faster than prices.

For businessmen the outlook is less rosy; for investors it's rather scary. Profits will be squeezed by a combination of lower exports to Asia and rising wage costs. Chris Varvares, president of Macroeconomic Advisers, an economic forecasting and consulting firm in St. Louis, Mo., foresees an outright decline of almost 4% in after-tax corporate earnings this year, measuring fourth quarter against fourth quarter, and an infinitesimal 0.1 % increase in 1999.

Sinai, who is chief global economist of Primark Decision Economics, the Boston-based econometric prognosticator, forecasts a profit rise of 4% this year and 5% next. But he notes that his figures are below the lowest estimates being made by Wall Street analysts. He expects--"by the end of the summer"--a correction of 10% to 15% in today's stratospheric stock-market prices that will interrupt a long-term bull trend. Varvares is both more and less optimistic. He foresees only an 8% drop in the Dow Jones industrial average but one that will fall "on a sustained basis" through year's end.

Both Sinai and Varvares are raging bulls compared with Edward Yardeni, chief economist of the investment firm Deutsche Bank Securities. Formerly one of the stock market's biggest boosters, Yardeni now thinks the Dow may give one last spasmodic twitch up to 10000 by September, then fall 30% in 1999. That, he says, would be in anticipation of a global recession starting in 2000.