Smile! US Economy Is on a Roll
Despite weak dollar, indicators show consumer confidence is at highest level in four years
NEW YORK — GET the whole family over for an economic snapshot: Uncle Joe from the union, Cousin Betty who can't resist a sale, Linda who is entering the workplace, and Tom who owns the biggest factory in town.
Look through the viewfinder: Wow, is that a smile!
Yes, in almost all snapshots, the United States economy at the mid-year point is on a strong growth track. The Conference Board, a business-research organization in New York, reports that consumer confidence is near its highest level in four years. Companies are reporting that their inventories are shrinking. And the average worker is putting in more hours every week to try to fill orders.
``I think we have the prospect of an explosion of jobs in the next few quarters,'' predicts Gary Shoesmith, director of the Center for Economic and Banking Studies at Wake Forest University's Babcock Graduate School of Management in Wake Forest, Ill.
The strong growth path was reconfirmed yesterday when the Commerce Department, in its latest revision of the first-quarter gross domestic product numbers, said the output of goods and services grew at 3.4 percent instead of the 3 percent rate estimated a month ago. Increased consumer spending helped to propel the increase. A significant portion of the hike in consumer spending, however, was to pay electric bills, with the onset of steamy weather.
The economic strength comes at a time when the US dollar is under attack on foreign-exchange markets. Yesterday morning, the dollar fell to 98.85 yen in New York, a new postwar low. ``The dollar is down against other currencies, but the yen is really strong against everything else,'' reports Bob Brusca, chief economist for Nikko Securities Company International.
Economic pace to continue
Economists expect the economic pace to continue in the second quarter before tailing off in the third quarter as higher interest rates begin to take effect. However, there are lots of anecdotal signs that parts of the US economy are as hot as the Southwest's deserts.
For example, the Portland Cement Association (PCA) reports cement production up 11.9 percent from a year ago April. The industry is working at 94.6 percent of capacity. In fact, spot shortages are cropping up in the south Atlantic, Rocky Mountain, and North Central regions. As a result, imports are up 60 percent in the first quarter of this year.
``The days of just pulling up to your local supplier and getting a load of cement are over,'' says William Toal, chief economist for the PCA in Skokie, Ill.
The order book for Multiplex Company in St. Louis is looking strong as well. The manufacturer of beverage dispensers for the food industry reports that orders are up 22 percent this year. ``Our work force is up about 15 percent this year, and we have made a major acquisition of capital equipment,'' says J. Walter Kisling Jr., the company's chairman.
But Kiva Container Corporation in Phoenix is experiencing a 6 percent to 8 percent drop in business over the last three months. The container industry is sometimes a bellwether industry, since most industrial and retail products have to be shipped or sold in a container. ``The Fed raising interest rates has not helped, and I have difficulty with their reasoning,'' says Ruth Stafford, the treasurer of Kiva.
Even as business has dropped off for Kiva, the cost of its raw material - liner board - has been going up. Kiva has just received notice of a 10 percent price hike in July. In one year, liner-board prices have increased by 30 percent. Ms. Stafford says the price hikes are the result of higher exports and shortages due to reductions in cutting of wood pulp on federal land. ``It's tough to pass these increases on, but you don't have much of a choice,'' she says.
CPI and PPI are key
It's not clear how much of such price increases will eventually show up in the inflation statistics. Economists will be watching the Producer Price Index and Consumer Price Index numbers carefully when they come out July 12 and July 13, respectively.
The inflation numbers will also be studied by the Federal Reserve Board, which has its next Open Market meeting on July 5. With a weak currency, there is a great deal of pressure on the Fed to raise interest rates.
A week ago, former Fed governor Wayne Angell called for a 3/4 percentage point increase in interest rates.