Low inflation and unemployment characterize strong economy
During Q4 1997, GDP increased by an estimated 4.3% annual rate, demonstrating continued above-average U.S. growth.
By Daryl Delano -- Modern Materials Handling, 3/1/1998
The U.S. economy moves into 1998 with strong momentum. Job growth is robust, unemployment is low, and inflation is practically nonexistent. The question is how long this momentum can be sustained. Although we at Cahners Economics agree that the Asian financial and currency market turmoil will sap the economy of some strength this year, we are more optimistic than most that stronger gains will materialize during 1999.The manufacturing sector of the economy has been the one constant driving force behind this long economic expansion. The strength of this sector has been manifested in the exceptional growth rates recorded since 1992 in both business investment spending and export shipments. After falling during the first two years of this decade, industrial production (essentially a measure of unit output from the manufacturing sector) has grown by an average of 4.7% a year, including a 5.6% gain last year.
In addition, during this period of industrial expansion, growth in original equipment manufacturing (OEM) industries has consistently outpaced overall manufacturing sector gains. Although annual output increases in the fabricated metal product and transportation equipment industry groups have sometimes bested and sometimes lagged overall manufacturing gains, growth in the two most important OEM industry groups- industrial machinery and electrical/ electronic products-has been well above the manufacturing average.
Who would have believed that after almost 7 years of uninterrupted economic expansion we would get growth in the U.S. economy that exceeds even 1994's gain, that inflation would remain under control, and that the unemployment rate would be stuck in the sub-5% range? Since the December 1996 speech by Alan Greenspan, chairman of the Federal Reserve, when he talked about "irrational exuberance" in the stock market, the Dow Jones average has moved up another 30%!
We do not believe that history will repeat itself in 1998. "Asian contagion" seems sure to sap the U.S. economy of some of its vigor. But we will fondly remember 1997 as a time when most things went right for the American economy because of a combination of good economic policy, far-sighted business investment, and, perhaps, just plain luck.
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