Editor's Memo

A good economic-forecast issue requires judgment, experience, and luck. Business Outlook Editors James C. Cooper and Kathleen Madigan displayed all three last year in our annual issue on Where to Invest. Their projections for 1993 were so good that they ranked second in BUSINESS WEEK's annual survey of 50 economists. The survey has been a regular feature for decades in our Special Issue on Where to Invest. But last year was the first that economists Cooper and Madigan jumped into the fray. And this year is the first time that BUSINESS WEEK has numerically ranked the results, similar to the way team performance is measured in rotisserie baseball leagues. For each of the nine items forecast, the person closest to the actual result received a 1; the second closest, a 2; and so forth. The nine rankings were added up, the lower the total the better.

A look at last year's Economic Outlook (Dec. 28, 1992) will highlight Cooper's and Madigan's prescience. Like the No.1 forecaster, Rosanne M. Cahn of CS First Boston Corp., the BUSINESS WEEK duo projected a first-half slowdown that would give way to a better second half, although they did underestimate the degree of the early-year weakness. They correctly said Federal Reserve policy would remain on hold throughout 1993. Why? Because the economy was strong enough to do without further cuts in short-term interest rates and because inflation was so tame that rate hikes would not be needed.

Cooper and Madigan also argued that a credible deficit-reduction plan would lead to lower long-term rates. They were correctly bullish on corporate profits despite the weak pricing climate, and they were one of the first to spot a new problem: the economy's widening trade deficit.

The investment forecasts in the 1993 version of the Where to Invest issue were also on target. Our writers advised investors to stick with stocks, especially small company issues. We also favored Asian stocks and were bullish on municipal bonds and real estate investment trusts. We underestimated, however, the strength of the bond rally and were a little too bearish on gold.

To check out this year's assessments, see page 68. But here's a hint of what to expect: For 1994, Cooper and Madigan expect economic growth to pick up to a moderate, but healthy, 3.2% pace, with inflation essentially unchanged from 1993.