Economic balloon still looking for a soft landing

By Staff -- Modern Materials Handling, 3/1/2001

A LOT OF AIR WAS LET OUT OF THE U.S. ECONOMIC BALLOON DURING THE SECOND HALF OF 2000. However, chances still remain slightly better than 50/50 that a soft landing is possible. This is after an increasing amount of turbulence in recent months that have left some reaching for the airsickness bag.

Growth in real (i.e., inflation-adjusted) Gross Domestic Product (GDP) slowed to an annual rate of 1.4% during the final quarter of last year, according to preliminary estimates from the U.S. Commerce Department. And final revisions for the third quarter of 2000 pegged GDP gains at a 2.2% annual rate-missing the 2.7% original estimate. This second half 2000 pace of economic expansion was quite a comedown from the 6.1% average annual increase in GDP that had been recorded over the previous four quarters.

Even so, last year was an extraordinary one for the U.S. economy. On an annual average basis, GDP growth in 2000 was 5.0% greater than during 1999-marking the strongest expansion for the American economy since 1984. But the final quarter trend was unsettling, with the 1.4% annualized increase representing the smallest quarterly gain recorded since the second quarter of 1995.

The lowlights of the latest GDP report were numerous. Consumer spending (two-thirds of all U.S. economic activity) growth slowed to an annualized rate of 2.9% during the fourth quarter of 2000, despite having averaged a 5.3% gain during the full years of 1999 and 2000. And of even greater direct and immediate significance for the business community (including manufacturers and distributors of materials handling equipment and supplies) were the surprising absolute declines recorded in the fourth quarter in business investment spending (-1.5%) and in export sales (-4.3%).

Encouragingly, we're still lacking solid evidence that the U.S. economy is in the process of falling into a recession. A good case can be made that the manufacturing sector has been in recession since the late summer or early fall of last year. But even if we have a flat-to-negative first quarter of this year, the aggressive action on the part of the Fed during January to lower short-term interest rates should help us skirt a general economic recession again during 2001.

We shouldn't underestimate the challenges ahead, though. The dangers to the U.S. economy are greater this year than they've been at any time during the past decade. This makes us increasingly vulnerable to international external shocks from the organization of petroleum exporting countries (OPEC) and unstable political situations. In other words, the balloon won't burst-but it won't get very far off the ground.