Guessing Right: A Dogged Dismal Scientist
Economic growth never follows a straight line, and one of the hardest challenges in forecasting is deciding when the economy will speed up and when it will slow down. Getting the pattern right was the key reason Constantine G. Soras scores as the most accurate forecaster for 2005, according to predictions surveyed by BusinessWeek last December. Close on his heels are Michael Carey of Calyon Corporate & Investment Bank and BusinessWeek's Business Outlook team.
Soras, who works for Verizon Communications Corp. (VZ ) and also does economic advising for brokerage firm GunnAllen Financial, based much of his growth outlook on the inventory cycle and auto sales. "I expected good holiday sales in 2004, which means companies would rebuild inventories in the first quarter [of 2005]," Soras says, resulting in a lift to output. Then, he observes, "it seems model yearend sales in autos always cause a spike" in third-quarter economic growth.
As for inflation, Soras missed the mark on oil prices. That was a mistake made by almost all the economists we evaluated. Soras, however, correctly anticipated that inflation would be higher than the consensus estimate. "Clearly, [total] inflation is driven by energy prices," he says, "but I also look at capacity utilization and I wonder, 'can anyone raise prices?"' Given how strong he expected the economy to be in 2005, he felt pricing power would firm up.
So what's on tap for 2006? Soras sees a slight slowdown ahead. First, he doesn't see how auto makers can top the employee-discount deals of last summer. Add in rising interest rates and high oil prices, and he thinks vehicle sales will fall in 2006. Plus, higher mortgage rates and the end of speculative buying in many regions means less demand in housing.
Soras' biggest worry for 2006 is home prices. "To what extent have consumers overextended themselves to buy their homes?" he asks. If homeowners who have adjustable-rate or interest-only loans suddenly face a big jump in their monthly payments, Soras worries that a flood of forced sales could exert steep downward pressure on home prices. Even so, he thinks good labor markets and income growth will enable most consumers to continue spending.
Soras was born in Patras, Greece, and got a bachelor of arts in mathematics at the University of Patras. He came to the U.S. for graduate school, earning both his masters and doctorate degrees in economics from Columbia University. He stayed in the U.S. and married. His wife, Mary, is a vice-president at JPMorgan Chase & Co. (JPM ). They live in Closter, N.J., with their daughter, Christina.
When he's not divining the economy's future, he plays chess on the computer. "I can beat the computer when my mind is clear," he says, "but when I'm not concentrating, boom -- I get hit." Obviously, Soras' mind was crystal-clear when he put together his winning 2005 forecast.
By Kathleen Madigan