Golden US Economy Heading for Record Books
Most economists now expect 79-month-old boom to last into the next century.
BOSTON — A new consensus is emerging that the nation's golden economy may last into the next century - becoming the longest recovery in the post-war history of the United States.
For American households, that kind of endurance is likely to mean rising incomes, a continued abundance of jobs, as well as plenty of overtime and year-end bonuses. It also can mean fatter government coffers, more money for schools, and the potential for lower tax rates.
Confidence in the longevity of this expansion - already 79 months old - is based on the robustness of key economic indicators. Unemployment and inflation are at their lowest rates in a generation. Housing construction is coming back. Consumer spending is solid. Business inventories are not seriously out of line with sales. Exports are strong. There are no major "excesses" in sight.
In a scale of 1 to 10, economist Paul Kasriel of the Northern Trust Co., Chicago, ranks this economy as "a 9." He adds: "There are no really weak sectors."
Almost all economists expect growth to continue at least through November 1998. That's when it will bust the peacetime expansion record set during the Reagan presidency.
If the expansion lasts through 1999 - and most economists have put that in their forecasts too - it will exceed the 106-month-long boom in the 1960s during the Vietnam War.
"We are having the best of all possible worlds," says Susan Hickok, chief economist for Prudential Economics, Newark. N.J.
THE Federal Reserve's low inflation monetary policy has dampened business fluctuations, notes Mickey Levy, chief economist of NationsBanc Montgomery Securities Inc., New York "In this much more predictable, stable environment, business and households can make better decisions."
Small business owners more than agree. They think the economy is doing even better than the economists say, William Dunkelberg, chief economist of the National Federation of Independent Business, says.
In fact, after taxes, the biggest problem of small businesses today is finding suitable employees, says Mr. Dunkelberg. A monthly sampling of the NFIB's 600,000 member firms shows these businesses have the highest plans in 25 years for hiring new workers. Some 18 percent find it difficult to get qualified employees. One in 10 are looking for unskilled labor.
"No one worries about inflation anymore," says Dunkelberg.
Job elimination and downsizing have dropped to their lowest levels of the 1990s, the American Management Association in New York reports. A survey found major US companies creating twice as many jobs as they cut in the 12 months ending in June.
But there are a few economists who rain on this parade of good news.
Though not quarreling with the overall strength of the economy, Robert Greenstein laments that the good times are not being equally shared. "Real wages of a typical full-time male worker fell once again in 1996," notes the executive director of the Center on Budget and Policy Priorities, a Washington think tank. "We have this growing disparity in the remuneration for work."
Citing the latest Census Bureau data, he notes that poverty failed to decline in 1996, the average income of the poorest fifth of American families dropped, and the proportion of children lacking health insurance rose.
Though the real income of the typical family rose modestly in 1996, the average incomes of the bottom three-fifths of the US population remained below 1989 incomes prior to the previous recession, Greenstein notes.
Brian Keane, executive director of Economic Security 2000, says that without changes in the Social Security system, many middle-class Americans will be "retiring into poverty."
What could trip up this marathon economy ?
The pessimistic scenario drawn by Standard & Poor's DRI, an economic consulting group in Lexington, Mass., includes an 18 percent drop in stock prices, trouble in the Mideast, a continued economic problems in Southeast Asia, disappointing corporate earnings, and feeble recoveries in Europe and Japan.
But that's "improbable," says Ezra Greenberg, a DRI economist. There's only a 15 percent chance of a mild recession next year, he says.
Mr. Kasriel wants the Fed to tighten the money supply now to preempt a modest rise in inflation next year. Otherwise, he says, it might have to tighten up more dramatically next year and prompt a recession in 1999.
It is the Fed which usually clobbers an economic expansion with higher interest rates when it sees too much inflation. "Recoveries don't die of old age," says Prakken. "They are killed by mistaken economic policies or outside shocks" - such as a huge jump in oil prices or war.