U.S. economy keeps getting better and better
Here are three other indicators of where the economy; is headed.; Business investment in equipment, forecast at an annual increase of 13% this year, will outpace the 3.6%, year-to-year gain predicted for gross domestic product.
By Elizabeth Baatz -- Modern Materials Handling, 6/1/1999
The U.S. economy continues to outperform expectations. Early estimates from the Government say gross domestic product rose at an annual rate of 4.5% in the first quarter of 1999, on the heels of a surprising 6% hike in the final quarter of 1998. A pick-up in consumer spending coupled with still-strong growth in capital equipment investment by business spurred the economy to this gain.As a result, GDP forecasts are being bumped upward. For the March 1999 Economic Outlook, we forecast GDP to rise 2.8% in 1999. Now the forecast calls for 3.6% growth. But even this may be too pessimistic. The Alexandria, Va.-based Blue Chip Economic Indicators panel of top forecasters calls for GDP to grow 3.9% in 1999, with the most optimistic forecasters calling for 4.4% growth.
Good news in the economy just continues to stream forth, especially from the consumer sector. The stock market has soared to record-breaking highs. The unemployment rate has fallen to a record 4.2% low. The Conference Board's consumer confidence index stood at 133.9 in March 1998, barely budging from the high confidence levels set a year earlier. And consumers are in a confidence-driven spending spree, as consumer spending grew at a booming 4.7% in the first quarter of 1999.
Meanwhile, investment spending also continues to chug along at a strong pace. Business investment in durable equipment rose 10.5% in the first quarter of 1999 after a 17.8% surge in the final three months of 1998. Investment in information technology is being driven by industry's desire to avert year 2000 computer glitches as well as by corporate America's embrace of electronic commerce.
Investments in automated systems to run modern warehouses have also been a part of this investment boom. Spending on information technology equipment accounts for more than half of all spending on new equipment by business. Thus, our forecast calls for business investment in structures and equipment to grow 8.1% in 1999, with the equipment sector up 13% (chart).
Optimism among business leaders is high now too. Companies are seeing improved efficiencies from their technology spending that are allowing profits to grow, labor productivity to surge, and prices to be held down.
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