US economic recovery is still onstage; power of oil cartel takes exit
The economic news reported last week rounds out a year of outstanding recovery for the United States economy. The immediate picture is of an economy growing too slowly but apparently not in the early stages of a recession. In fact, there is good reason to expect the present rate of growth to pick up in the new year, especially if the Federal Reserve can manage to be a bit more generous in its policies toward money supply growth.
The biggest item of the week was the flash report of fourth-quarter gross national product - up at a 2.8 percent annual rate. These flash reports are subject to substantial change, but indications from the Commerce Department are that, if anything, this number may be revised upward.
The most important thing about the number is that the Commerce Department estimates that inventory growth is less a factor in the fourth quarter (which ends in another week) and final demand a stronger factor. In previous quarters, inventory growth had accounted for the largest part of gain in the GNP. A new Ford counts as part of the GNP, whether it is sitting in an auto showroom on in your driveway. But plainly, too many Fords sitting in auto showrooms would not represent a healthy economy, and in fact would lead to an eventual decrease in the rate of their manufacture.
During the present quarter, business has apparently been successful in getting rid of excess inventories. If that does turn out to be the case, normal inventory accumulation again in 1985 could be a positive factor.
Personal income rose 0.7 percent during November, another healthy sign for the economy. At the same time, however, mortgage delinquencies are at a new high. The rise has occurred mainly in the category of early delinquencies - 30 to 59 days past due. This is not a sign of vigor. It is explained as occurring mainly in those areas of the country where there are still pockets of high unemployment. But that fact only says that this has been an incomplete recovery. It certainly argues for every effort being made to extend the recovery and not let the sag of the last two quarters extend itself into a recession.
We have mentioned before that recessions are less likely to occur in the absence of overheating. Two events last week were promising on that front. The consumer price index for November showed that indicator up only 0.2 percent, and the CPI for the year is going to come in within the 4 percent range. That does not say ''no inflation,'' but compared with so much of the recent past it does make inflation shrink as a current concern.
The second event was the OPEC meeting in Geneva. It may be premature to write an obituary for OPEC, but something like that is close to happening. As cartels go, this one has had a long and successful life. It now appears that the self-interest of its various members is too strong for the elements that have held it together in the past to maintain their cohesive force.
The virtual passing of OPEC is to some extent due to its success. The two oil shocks of the 1970s forced the world to realize what the true replacement cost of its energy sources is. They led to new waves of exploration and development of oil and gas, and to serious conservation measures among the big industrial nations.
The success of OPEC in maintaining high oil prices also indirectly led to some of the dislocations of the 1970s - the multibillion petrodollar balances in international banks, the competition to make loans to developing countries, the overoptimistic projections made for world economic growth. The winding down from that phase of recent history goes on, not without some pain. But the positive side is that, whether or not OPEC keeps going as an organization, its pricing power seems at last to have been broken. Thus there should be no unpleasant surprises on energy costs for the foreseeable future.
Thus we have at least two recent indications that inflation will not be a factor that brings this expansion to an end. Which is at least one reason for thinking it can continue a good while longer.