The Economic Environment and Market Expectations
Dr. Anthony Chan
Senior Economist
Banc One Investment Advisors

The recession ended in December 2001, based on traditional economic indicators, but the recovery is moving at a remarkably slow pace, according to Dr. Anthony Chan.

Although the economy is recovering, few new jobs are being created. Chan said this situation heavily influences public opinion about the state of the economy. In particular, industrial production increases have been minimal, so employment in this sector is exceptionally weak. Chan expects job losses in the manufacturing sector to continue.

As one significant indicator of the economy’s direction, Chan noted that consumer spending grew last year. That trend will continue this year, he said, although spending may not grow at the same rate the nation experienced in 2002.

Capital spending, which expanded at historical levels during the 1990s, declined during the recession. When corporate profits return, Chan predicted, capital spending will rebound.

Chan was dismissive of predictions that the United States will experience deflation. Last year inflation was 2.4%; he predicts it will be 2.5% this year. The most significant reason why we will experience inflation, he said, is the rising cost of health care. Costs for health insurance were up 15% or more for large companies, 20-25% for small ones.

This year Chan believes the nation’s economy will grow 2.5%. He expects a 5-7% increase in the S&P 500.

Chan has worked as a college professor, and has been associated with the Board of Governors of the Federal Reserve in Washington, DC, and the Federal Reserve Bank of New York.  He has also served as an economist with Barclays de Zoete Wedd Securitie before joining Banc One Investment Advisors Corp. in 1994.

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