Twelve Good Things About the Past YearT
THANKSGIVING day in the United States has passed. But that hasn't stopped economists Roger Brinner and David Wyss from listing economic developments in the past year ``to be grateful for:''
1. Inflation is moderate and stable. It is running near 3 percent, as measured by the consumer price index (CPI).
2. The price of crude oil fell from $17.59 on Oct. 27 to below $15 today, helping keep inflation down and offsetting the increase in food prices caused by the flood in the Midwest.
3. Health-care cost increases have slowed. Inflation in health-care services averaged 6.6 percent a year from 1986 through 1991, higher than the average increase in the overall CPI of 4.3 percent a year. So far this year, prices of health services have risen at an annual rate of only 4.3 percent.
That improvement, the two DRI/McGraw-Hill economists say, has resulted from ``fear of health-care reform, increased pressure from employers and insurers to hold down costs, and the general reduction in wage inflation, which is beginning to reach the health-care arena.'' They expect the trend to continue.
4. Automobile production, which slumped in the third quarter, is soaring in the fourth quarter. The summer plunge in auto output subtracted 1.1 percentage points from real growth in gross domestic product. The rebound could add as much as 1.5 percentage points to the annual rate of growth in national output this quarter.
(The health-care industry, by the way, now surpasses the auto industry as the largest in the nation.)
The boom in auto sales was a key factor in the 0.9 percent gain in output at the nation's factories, mines, and utilities in November. It was the sixth straight monthly gain in industrial production and the largest in a year.
5. Christmas retail sales appear strong.
Installment credit, which had been declining as a share of disposable income since the 1987 stock market crash, has started to accelerate sharply. It dropped from 18.8 percent of disposable income in September 1989 to 15.4 percent last December. It is now running around 16 percent.
6. Interest rates are the lowest in a generation.
7. Low mortgage costs have stimulated home buying. Sales of single-family homes have reached a 14-year peak.
8. Jobs are being created at a sustainable rate averaging 188,000 a month through November of this year.
9. The quality of jobs is improving.
In November, the 208,000 jump in employment included an increase in manufacturing jobs for the second consecutive month. Manufacturing employment has fallen 177,000 over the past 12 months. Because of the current length of the work week in manufacturing - 41.7 hours - Messrs. Brinner and Wyss anticipate more hiring in the future.
The bulk of job creation this year has been in the service sector and in managerial and professional jobs, rather than unskilled labor or clerical positions. Since 1990, managerial and professional employment accounted for all net new jobs in the US and for 51 percent in the last 12 months.
10. Incomes are keeping ahead of inflation. But because consumers are financing more purchases by increased borrowing and a cut in their savings rate, Brinner and Wyss expect spending to slow in early 1994, as consumers pause to let income catch up.
11. The passage of the North American Free Trade Agreement reduces the risk of a trade war. The success Wednesday of world trade negotiations under the General Agreement on Tariffs and Trade (GATT) will widely reduce barriers to trade.
Economic benefits from the GATT round will be gathered over the next five to 10 years, Brinner notes.
12. The US economy is stronger than that of other major industrial nations. While the US recovery has been slightly disappointing, the recovery in Europe and Japan has been non-existent, the two note.
But Germany, France, and Japan have been moving to revive their economies with lower interest rates. Japan also has been using fiscal measures. ``It is turning around a little quicker than we thought,'' Wyss says. Statistics this week show modest upturns in all three of those countries in the third quarter.