|Too Great Expectations?|
|Topic||Productivity and Growth|
|Key Words||Economic Growth, Inflation, Productivity, Unemployment|
If an economist were to grade the economy's performance over the last year, the grade, based upon a number of economic data series, would probably be a B. If we were to look at forecasts of economic growth for this year and next, the grade would be even better. This evaluation is, however, inconsistent with the national mood. Consumer confidence has plummeted since early 2000, aided by the dismal performance of the stock market and the scandals plaguing corporate America. Unless the national mood changes, or some major event like war with Iraq occurs, the economy will likely muddle along.
Despite last month's increase in the unemployment rate to 6 percent, and the flat retail sales, the economy is forecast to grow by 3 percent in 2003. Inflation is low, productivity is strong and a 6 percent unemployment rate is lower than the jobless rate in the 1980s and early 1990s. Indicators of financial distress, like housing foreclosures, are relatively stable and consumer indebtedness is slowing. That's the good news. The bad news is that there is a lot of pessimism about the economy.
October and November economic data were weak, and there was considerable discussion of the possibility of a "double dip" recession. Reports of mounting budget deficits, deflation resulting from industry overcapacity and weakness in the investment sector diluted consumer confidence. Terrorism, the threat of a war with Iraq, and North Korea's nuclear program and the impact of these events upon the economy, were added sources of worry.
Many economists believe that the primary problem with the economy is
its failure to meet consumer expectations. The late 1990s were characterized
by significant economic growth and substantial run-ups in the stock market.
Lots of people made lots of money. The recession of 2000 coupled with
the terrorist attacks of September 11 changed all that. The economy is
fundamentally sound, and as moderate growth continues, economists expect
expectations to align with performance.
(Updated February 5, 2003)
|Source||Alex Berenson, "This Testy Economy Refuses to Be Charmed," The New York Times, December 16, 2002.|
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