by JACK LYNE, Site Selection
Executive Editor of Interactive Publishing

"The good news is that there is no recession on the horizon," prominent economist Loren C. Scott told attendees at the International Asset Management Council’s (IAMC) Professional Forum on March 5th. "The global economy will continue to grow as well, but it’s slowing down," Scott said during his near-term economic forecast at IAMC’s record-attendance gathering at the Ritz-Carlton on Amelia Island.

Loren C. Scott

In the U.S., economic growth will hover at around 3 percent through the fourth quarter of 2008, the former chairman of the Economics Dept. at Louisiana State University predicted. American business investment, however, will register substantial growth through the end of ‘08, as will government spending, he noted.

"The problem," Scott noted, "is consumer spending, the biggest institution in the whole economy. With higher energy prices and higher interest rates, people are now watching their pennies. And there’s a cooling in home price appreciation; [prices] are not growing nearly as fast as they were."

Consequently, mortgage equity withdrawals have slowed, "and home equity loans are not much of a source of money anymore," he said.

U.S. inflation, though, will "continue to be modest," Scott contended.

"[Alan] Greenspan did a good job of keeping interest rates down," he said of the former chairman of the Federal Reserve Board. "The new guy [Ben S. Bernanke, who succeeded Greenspan early last year] is also anti-inflation, except we may understand what he means when he says something."

Interest rates "will rise somewhat . . . between 6 and 7 percent," Scott predicted.

"There’s a long-term connection between the U.S. trade deficit and interest rates," he pointed out. "We buy more from foreigners than they do from us, so they end up with U.S. currency."

Many of those non-U.S. residents are using their dollars to buy U.S. treasury bonds, said Scott. "So the price of bonds has gone up, but interest rates have gone down. The yield curve lessens."

A drop in interest rates has been a component of past recessions, he added. "But an inverted yield curve doesn’t necessarily lead to recession."

Oil, however, will continue to be a wild card in the world economic outlook, said the president and founder of Loren C. Scott and Associates.

"Oil prices will still be volatile and unpredictable," he predicted.

The global supply side for oil is strong and will remain so, Scott explained. Together, Venezuela and the Canadian state of Alberta alone have enough oil to supply the entire world for 30 years, he noted. "Twenty to 30" oil exploration projects are mounted each year, he said, including last year’s discovery off the U.S. coast of several major oil fields in the Gulf of Mexico, which many oil companies anticipate will be bigger than Alaska’s Prudhoe Bay.

"The normal economic pressure, then, would be for the price of oil to come down," Scott said.

But there’s a very large fly in the supply-side ointment.

"Thirty-one percent of the world’s oil is in repressed countries," Scott explained. "And two-thirds of it is in countries that don’t let the market economy rule."

Scott advised his audience to carefully monitor the U.S. labor market. A major worker shortage is looming, and that will create pressures that raise wages, he predicted.

After being "very tight before the recession," the labor market is "very loose now," said Scott. "But soon, it will be very, very tight."

That change traces back to procreation — or the lack of it, he explained. From 1947 to 1961, the average family produced 3.8 children, Scott noted. Since 1961, however, the average family has had 1.8 children.

"We’re not replenishing our work force," he noted. "And what happens with shortages? Right, prices go up."

Other near-term labor force trends will include "older workers staying in the labor market longer, the substitution of machines for labor, and more outsourcing to other countries," he asserted.

The U.S. labor crunch, added Scott, will prompt corporate calls for a major increase in the immigration of skilled labor.

Only two days later, Bill Gates echoed Scott’s labor forecast in the Microsoft chairman’s testimony before the U.S. Senate.

American competitiveness, Gates told the Senate Health, Energy, Labor and Pensions Committee on March 7, depends on doubling the number of U.S. college graduates in science, math, and technology by 2015. In the meantime, Gates asserted, the U.S. must relax immigration policies to admit more skilled high-tech talent.

One damaging restraint, he contended, is the U.S. cap of 65,000 H-1B visas, which American firms utilize to hire foreign technological employees to work in the States. This year, American companies had used up all 65,000 visas four months before the new fiscal year began.

"For 2008, they will run out even earlier, well before degree candidates graduate," Gates said. "So for the first time ever, we will not be able to seek H-1Bs for this year’s graduating students.

"The wait times for green cards routinely reach five years," he added, "and are even longer for scientists and engineers from India and China — key recruiting grounds for skilled technical professionals.

"Our immigration policies are driving away the world’s best and brightest precisely when we need them most," Gates told the Senate committee. "America has always done best when we brought the best minds to our shores. Scientists like Albert Einstein were born abroad but did great work here because we welcomed them. The contributions of such powerful intellects have been vital to many of the great breakthroughs made right here in America."