Amid good news
Look around these days and it is increasingly difficult to find less than an upbeat mood on the part of the public and business community about the US economy. Consumer confidence is high. Unemployment is falling. Corporations - laden with earnings from extensive consumer spending, including the public's recent holiday buying spree - are investing in new plant and equipment. Meantime , the recovery is starting to take hold abroad - as measured by strong performances recently on overseas stock exchanges.
In other words, assuming that there are no major diversions - such as the outbreak of regional conflict in the Mideast or elsewhere - the world may well be in for a period of sustained global economic growth.
The extent of the bullishness about the economy stands in sharp contrast to the gloomy perceptions during the winter of 1982-1983. Back then the public was preoccupied with growing unemployment. Reports filled the papers and TV news broadcasts of food lines and soup kitchens. Congress responded in part by enacting a multibillion-dollar jobs program.
By contrast, consider just a few bits and pieces from current news reports. Take the consumer-oriented auto industry. Ford Motor Company is expected to invest up to $500 million to produce a small car in Mexico designed for US sales. General Motors is going ahead with a new joint car venture with Toyota (to build small cars in California), while reorganizing the world's largest automaker into a leaner company by consolidating the firm's five car divisions into two groups, one building big cars, and one building small cars. And the National Association of Purchasing Management says its purchasing managers composite index rose to 67.2 percent in December, up from 62.9 percent in November. That suggests that the economy is still growing vigorously - and that the economy may not have cooled as much as many economists had believed late last year.
Still, amid all the rising euphoria about recovery and growth, it is important not to forget how carefully intertwined world economic conditions are, and how unexpected events can alter even the most widely assumed projections. Saying that is not to naysay the recovery. The recovery is proving stronger and more durable than had been anticipated. This was particularly evident in last month's jobless rate. US unemployment was down to 8.2 percent in December from 8 .4 percent in November. Unemployment is now expected to fall below 8 percent this year.
But the very drop in unemployment as well as the continuing good news on the inflation front (with inflation below 5 percent and most current wage settlements coming in below that level), make it all the more imperative for global political leaders to take the necessary steps to ensure that the recovery proves long lasting and broad based. The Reagan administration should fashion an economic policy that looks ahead to the next several years regardless of who is president.
The good news regarding joblessness still masks persistent hardship for many Americans, including many who were part of once-thriving manufacturing industries, and particularly black Americans. Black unemployment actually rose last month. And millions of frustrated job seekers have apparently left the labor market. US policymakers have an obligation to ensure that no Americans are left behind in the current recovery.
Moreover, the biggest danger to sustained world recovery remains the massive budget deficits now projected over the next few years. In that regard, White House presidential adviser Martin Feldstein is once again pressing his case for a substantial tax hike on the order of $50 billion in 1985 and each of the two years after that. Not to do so, he insists, will keep deficits in the range of $ 170 billion or more annually, a level that will maintain, if not increase, pressure on interest rates.
High US interest rates are a major reason for the soaring US dollar. Last Friday, for example, the dollar set record closings against the French franc, the British pound, and the Italian lire. True, the rampaging dollar attracts capital from abroad. But it also puts upward pressure on European interest rates , which could blunt Europe's own recovery. It also undercuts US exports by making them expensive vis-a-vis overseas goods.
President Reagan and Congress should take action to reduce the deficits. At stake is not just the US economy, but global economic growth.