The Economic Outlook for 2003

It is a pleasure to be with you today. Each year I receive several invitations to give talks on the economic outlook for the year ahead, and this is my first such talk for 2003. I enjoy preparing these forecast talks, since I prepare them during the holiday season when I have a little more time than usual to review the latest economic data, and also to read what other economists and policymakers are saying about the outlook. So hopefully I have a little clearer handle on things than I sometimes do, and I hope these remarks will be useful to you. Obviously the last three years haven't been particularly happy ones for the economy, neither here in the U.S. nor elsewhere in the world. After four years of sustained high growth in the late 1990's, the economy slowed sharply in the year 2000. It slowed further and entered a recession in 2001 before apparently beginning to recover in the final quarter of that year. As 2002 began, most economists expected the recovery to continue to accelerate, and to deepen. I remember summarizing that kind of concensus outlook when I made the 2002 edition of this talk a year ago. And indeed the recovery did continue, and growth did accelerate last year, but it did not appear to grow the kinds of economic roots needed to develop into a broad, sustained business expansion. In particular, a sizable portion of last year's growth reflected the aggressive new car sales incentive programs in place at various times during the year. Since these programs were scaled back late in the year, most forecasters now expect real GDP growth in the fourth quarter to come in at only about 1 percent at an annual rate when the initial GDP report for that quarter is released January 30.