U.S. economy to escape recession through 2000
Growth in gross domestic product will slow to gains around 2% through the year 2000 after last year's higher spikes in several quarters.
By Elizabeth Baatz -- Modern Materials Handling, 3/1/1999
Even the most hand-wringing pessimists are coming to this conclusion: The U.S. economy will likely escape recession over the next few years.Shrugging off any effects from the Asian crisis, U.S. gross domestic product (GDP) rose a revised 3.7% in the third quarter of 1998. And early estimates place GDP growth at a stunning 5.6% in the fourth quarter of 1998. These gains have generally outstripped most forecasters' expectations.
As a result, many near-term forecasts have been revised upward. Looking at GDP forecasts from Blue Chip Economic Indicators, Alexandria, Va., and its consensus of 50 economic forecasters, we see GDP is predicted to grow between 1.9% and 2.5% every quarter between now and the end of the year 2000. Even the top ten pessimists in this panel suggest that the weakest annualized growth that the economy is likely to experience will be 0.7% in the first quarter of 2000.
Still, pessimism from the dismal science dies hard. There are many recession triggers. For example, the economy could face a worsening inter- national financial crisis, a stock market correction, or a slowdown in consumer spending.
On the consumer front, Thinking Cap Solutions' industrial economic model sees little to trigger a recession. True, housing starts are forecast to slow down. But this slowdown will be from such a high level that consumer spending will not be unduly affected. In 1998, homebuilders started work on 1.6 million new housing units, up 8.4% from 1997 levels. Housing starts are forecasted to fall 3% in 1999 and to drop 4% again in 2000. But by the end of 2000, 1.5 million housing starts and commensurate spending on appliances, rugs, and the like will still be greasing the consumer wheel.
Consumer confidence reflects the housing boom. In June of 1998, consumer confidence hit a new all-time high of 138.2. By the end of the year 2000, we expect the confidence index will remain at a still-high level of 132. Helping maintain confidence: Falling interest rates and low inflation.
Inflation rates, however, are likely to pick up a bit in the next two years. The consumer price index rose a meager 1.6% in 1998. TCS forecasts the CPI rate will rise 1.9% in 1999 and 2.5% in 2000. These inflation gains are so mild that the threat to economic growth looks distant indeed.
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