Chase Economist Speaks to Suffolk Chapter

Predicts No Recession in 1999, but What About 2000?

By James L. Craig, Jr., CPA

Dr. Irwin Kellner, consulting economist for Chase Bank and professor of economics at Hofstra University, was the featured speaker at what has become his annual address at the January dinner meeting of the NYSSCPA Suffolk Chapter. Kellner presented the current economic state of affairs and offered his predictions for 1999.

"Dr. Kellner's speech indicated we have cause to continue to be optimistic about our national and local economy," Suffolk Chapter President John Knox said.

Kellner pointed out that the current bull market is now the longest ever--it started more than 16 years ago on August 13, 1982. The market has gone up 900 percent over that time, twice as much as corporate profits. Price-earnings ratios are in the stratosphere. The market has been up eight years in a row, with the last four increases each more than 20 percent. Households spend more than they save. January marked the 94th consecutive month of economic growth, a record for peacetime expansion. And Fortune 500 companies continue cutbacks as at no other time.

After setting the stage, Kellner asked, "Have we repealed the basic workings of our economy? Can this ever-upward economy possibly continue?"

His quick answer was that there will be no recession in the near future. He said that the federal government would intervene--and, more importantly, has the capacity to intervene because of budget surpluses--to stimulate the economy should it start to seriously falter.

Kellner then outlined his views on how the U.S. economy will perform in 1999. Saying it would slow down somewhat, he predicted that while growth for the fourth quarter of 1998 was almost 5 percent, in 1999 it will be more like 2.5 to 3 percent. He said the stock market cannot go upward indefinitely, especially with the declining corporate after-tax profits seen in last year's second and third quarters.

Addressing the Y2K problem, Kellner stated that while the fear of what may happen on January 1, 2000, cannot be fully factored, profits will be under pressure because of Y2K expenditures.

Other predictions include his views that inflation will not be a worry; unemployment will remain under 5 percent; long-term rates will decline with the U.S. Treasury long bond at 4.5 percent or lower; the Dow average will not see 10,000; and the euro will not replace the dollar as the world's currency since the economies of the 11 countries of "euroland" are just not that strong.

While Kellner did not venture to make any specific predictions past 1999, many in the audience came away with the clear impression that he had deep-seated concerns beyond this year.

The Suffolk Chapter's Real Estate and Construction Committee hosted the meeting, and Chase Bank sponsored Dr. Kellner's presentation. In addition to chapter members, the event was well attended by representatives of Long Island's banking community. *