Expect the worse, but expect to wait awhile.
For now and the near future, there just isn't much for the economic doomsayers to hang their hat on. It seems that they just cannot accept that a cycle of economic growth could possibly sustain itself over this long of a period--now into its seventh year. Well, at least when things finally do slow down, they will have the joy of saying, "See, I told you so!"
Until then, we can pretty much expect more of the same, which is just fine.
What our downside brothers can't seem to see or understand is that this "up" cycle is unlike any other we have experienced since at least World War 11. Consider the growth rates during the last five cycles when significant expansion took place. Between 1961-69, the annual growth rate ran about 4.8%. Between 1970-73 it was 5.2%. The 1975-79 period saw the economy grow at a 4.4% clip. Then, between 1982-89, we experienced a 3.9% annual growth. In our current cycle, which started in 1991, our rate of growth has been running about 2.9%.
Clearly, what we are experiencing right now is just about the best possible economic scenario we could have: slow but steady and sustained growth. When expansion takes place too rapidly and with too much growth, ultimately inflation will undermine any real increases and oftentimes leave us worse off than before the onset of the growth cycle. There's nothing wrong with slow growth as long as it Is sustainable.
As long as the inflation rate remains below the real gross domestic product, there is little or no risk of a recession. Currently, the inflation rate is about half of our GDP.
If there is a real danger, it will probably result from our tightest labor market in 30 years. With the unemployment rate below 5%, there is some fear that some wage inflation could set in. While few hints of this have been seen, if the labor market remains tight long enough, watch for some inflationary signals coming from the wage front.
As you read in last month in the modern casting cover story, the foundry industry can look forward to another strong--in fact, peak--year in 1998. If everything holds as expected, casting shipments should come in just slightly less than 15 million tons, up 7% over 1997, and up 1% over our latest peak year of 1994. The value of casting shipments this year is expected to reach $28.3 billion.
I know, I know, all of this could fall apart under certain circumstances. If that's what you need to hear to make you feel better, OK. Things could go to hell in a hand-basket tomorrow. The stock market has been volatile and the Asian markets have been a problem. The fact is, the underpinnings of the American economy are strong and stable. And not even these events have been able to shake it.
Business and industry has been through and learned a lot during the past 15 years or so--most of it good. I guess you could say it was a real character builder.
Think back to 1982. Interest rates had finally slipped below 12% (from 21%, the year before). Inflation was almost out of double figures. Unemployment was slightly above 10%. At the same time, the average cost of a new car was $10,000 and a new house was $100,000. Considering those last two figures, I guess I can see why some people yearn for the old days. But it's those first numbers that I never want to see again. And it's those numbers that scared a lot of businesses into where they are today: healthier, wiser and more skeptical of the good times.
So maybe you have good reason to look for signs of a downturn. But do me a favor. Don't hold your breath while you're waiting to find them.
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|Title Annotation:||US economy|
|Author:||Kanicki, David P.|
|Date:||Feb 1, 1998|
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