The Savviest Soothsayer Of AllKathleen Madigan
Rosanne M. Cahn hit the bull's-eye in 1993. When scored against the 49 other economists in BUSINESS WEEK's December, 1992, survey, the CS First Boston economist had at least the third-closest forecast in seven of the nine categories that covered economic growth, inflation, interest rates, and unem- ployment.
How did she do so well? Cahn admits that she is "amazed" that other forecasters did not foresee the first-half slowdown. "Forecasting uses things that are knowable," she explains. "And what was knowable at the end of 1992 was that post-hurricane purchases and the shifting forward of bonuses to avoid taxes would boost fourth-quarter  spending at the expense of early 1993." And because Cahn projected economic growth at just 2.3%, she correctly expected lower inflation and only modest improvement in the unemployment rate. Others reading the economic tea leaves fairly accurately included: BUSINESS WEEK's economists; Lloyd T. O'Carroll of Reynolds Metals; and Allen Sinai, now at Lehman Brothers.
For 1994, Cahn foresees the economy growing at a 3.1% pace, with the major emphasis on capital goods, especially computers: "The substitution of capital for labor will continue, especially as the relative cost of labor keeps rising." In Cahn's view, low interest rates and advances in the computer industry have sharply cut the cost of capital equipment. At the same time, government mandates such as raising the minimum wage and Clinton's health-care proposals continue to exert upward pressure on the cost of workers.
KID CARE. Moreover, these cost differences won't narrow soon, considering Washington's emphasis on family-and-work issues. Observes Cahn: "Machines don't go home to take care of sick kids."
Of course, surprises could upset the 1994 forecasts as they did in 1993. Cahn points to the March blizzard and summer floods as two shocks to the 1993 economy. "Certainly, no one could have known how bad the weather would be," she says. After all, Cahn and the others are economists, not meteorologists.