Unemployment will fall, inflation will simmer and the Dow will
pop almost 500 points by the end of 2014, according to the
predictions of economist
Alan R. Beckenstein, professor of business administration at
of Virginia Darden School of Business.
Beckenstein made the moderately optimistic predictions at the
annual Economic Forecast event held this month for the Darden Charlottesville alumni chapter. During his presentation,
he made clear he also expects some bumps in the road ahead.
"It's been five years since the last recession ended and six and
one-half since the subprime crisis," said Beckenstein. "That's a
long time without a major shock. Expect something negative to
happen in the next two years. We just don't know exactly what it
His forecast for 2014, while certainly not bullish, is at least
positive. He foresees a real GDP growth of 2.6 percent, core
inflation held at 1.8 percent, an unemployment rate going down to
about 6.7 percent for the yearly average and a closing Dow Jones
Industrial Average (DJIA) at 17,050. The Dow is currently at about
The stock market, according to Beckenstein, will continue its
amazing run. But he says that despite the bull market, people still
don't seem to have much confidence in it.
"How many people believe the market is going to stay there and
also change their spending habits?" remarked Beckenstein.
Beckenstein, an economist, likes to joke about his profession
while analyzing the state of the United States and world economies.
"An economist is a numbers person who didn't have the personality
to become an accountant," he explained to about 60 Darden alumni
who attended the annual event.
Beckenstein's predictions for 2013 were near the mark on
unemployment — 7.3 percent predicted compared to 7.49 percent
actual — and on inflation — 1.8 percent predicted compared to 1.7
percent actual. But he was a bit off the mark in guessing GDP
growth, which he opined would hit 2.4 percent. Instead it was more
sluggish at 1.8 percent. His DJIA prediction, like many
people's, was way off. He called for the Dow to stand at 13,900 by
the end of last year; instead it bulled to a whopping 16,576
Beckenstein says growth was steady but slow last year in part
because of the continuing effects of the structural shock - a
bursting bubble - the economy underwent six years ago. Meanwhile,
core inflation has stabilized and the unemployment rate is in a
state of steady decline "and there is real job growth behind that,"
he said. "The number of 'hardcore unemployed,' or those without a
job for a half year or longer, is high, but declining. However,
skills are eroding for that group."
The debt burden of households has improved and servicing the
cost of debt has been made less burdensome by very low interest
rates, he says. Business savings "is quite strong" though business
investment is cautious. That's because businesses are taking a
wait-and-see attitude, hoping for a stabilized "policy
environment:" and for Europe to "calm down." "Steady and more rapid
growth prospects — and confidence in government policies — would be
necessary to inspire investment," Beckenstein added.
As for Europe, Beckenstein said the European Central Bank "made
an enormous commitment to defend the euro. That means it's going to
last longer than it should. Sooner or later, all bad things fail;
the Eurozone should not include so many disparate economies."
Beckenstein even took on health care: He said that if he had to
"keep it as it is or kill it, I'd go with it. I prefer to see it
fixed. We need compromise and improvements. The key to solving
health care is to have incentives to lower risks, including
preventive care … The U.S. costs are out of control and our failure
to cover many citizens is the laughing stock of the developed
world. Most of the rest of the world does it better."
About the Darden School of Business
The University of Virginia Darden School of Business is
one of the world's leading business schools, offering MBA, Ph.D.
and Executive Education programs. The unique Darden experience
combines the case study method, top-ranked faculty whose research
advances global managerial practice and business education, and a
tight-knit learning environment to develop responsible and complete
leaders who are ready to make an impact.
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