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Those Rose Colored Glasses Were 20/20

Where to Invest in 1998 -- The Framework: TOP GURU


Some children dream of playing baseball or exploring space. Not Allen L. Sinai. "I've loved economics, probably since I was a little boy. I just love working with numbers," says the chief global economist of Primark Decision Economics. Well, Sinai hit a home run in 1997, when his forecast for the economy proved to be the most accurate of the 50 surveyed. Sinai's projecting precision was followed closely by the forecasts of James F. Smith of the University of North Carolina and consultant Morris Cohen. BUSINESS WEEK's projections placed 10th out of the 50 forecasts.

Back in December, 1996, Sinai was more optimistic on economic growth than the consensus forecast, and he saw little inflation trouble ahead. And because he discerned few price pressures building, his forecast for a drop in interest rates was right on the money.

Looking back, Sinai points out that 1997 was different from previous years of this expansion in that the economy's largesse reached more people. Workers saw gains in real pay and better job prospects, he says, while investors benefited from soaring stock and bond prices. Overall, says Sinai, "1997 was an extraordinary year for Main Street and Wall Street."

In fact, Sinai sees a growing "symbiotic relationship" between the denizens of Wall and Main Streets, and the link is productivity. That's not a surprise, since the 58-year-old Michigan native counts himself within the New Economy camp, which preaches that high productivity gains have enabled the economy to grow quickly without generating inflationary pressures. "The blood, sweat, and tears of American workers are accounting for the gains in real wages and also for the good fortune of Wall Street" says Sinai. At the same time, he notes: "More Americans are dependent on the stock market for more of their pay, in the forms of stock options and 401(k) contributions."

KING OF THE HILL. For 1998, Sinai expects the year to be "excellent, but not the barn burner of 1997." He projects that economic growth will slow to 2.3%, with inflation remaining tame at 2.5%. The Federal Reserve will likely hike short-term interest rates, says Sinai, but only once or twice, pushing the federal funds rate to 6%.

Sinai divides his time between Primark's headquarters in New York and his home in Lexington, Mass., where he lives with his wife, writer Lee Etsten Sinai. He has been doing the weekly Northeast Corridor commute since 1983, when he became chief economist at Lehman Brothers. Prior to that, Sinai worked at Data Resources Inc., now Standard & Poor's DRI, where he worked with founder Otto Eckstein to develop the DRI econometric model.

Sinai compares forecasting to the task of Sisyphus in Greek mythology. Sisyphus was condemned for eternity to roll a boulder to the top of a steep hill, only to see the stone roll back down and the task begin again. "Every year, we get to do a new forecast," Sinai says. "And when we're wrong, the stone rolls to the bottom of the hill. And we have to do it all over again." For 1997 at least, Sinai's stone stayed at the top of the hill.By Kathleen Madigan in New York

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