`Weak' economic recovery shows up at Muscle Beach
AS of next month, the current economic expansion will match the record for the longest modern peacetime recovery - that between 1975 and 1980. (One in the late 1700s may have been longer.)
Moreover, economists are pretty well agreed that this expansion, now 57 months old, will continue well into 1988 if not '89. A consensus of nearly 50 economists surveyed by Blue Chip Economic Worldscan looks to a full-fledged recession in the United States economy only in the second quarter of 1989. The group had on average previously thought it might occur in 1988.
But this expansion has some ways to go to beat the record 106 months of the 1961-69 recovery during the Vietnam war or the 80 months of the World War II 1938-45 recovery.
Another point: Economists have been bad-mouthing this recovery for a long time, terming it weak. Recent upward statistical revisions of national output numbers show that's not so.
``It has come out fairly close to the previous two long expansions,'' notes Geoffrey Moore, director of the Center for International Business Cycle Research. Real gross national product has risen 20.2 percent so far in this recovery, close to the 21.4 percent in the same number of quarters in 1975-80, and 25.6 percent during the Vietnam war expansion. The growth in employment for the same three expansions was 13.6 percent, 16.4 percent, and 8.9 percent, respectively.
Indeed, economists and the markets got something of a shock Friday when the industrial production index for July rose a robust 0.8 percent, considerably more than predicted. That, combined with an increase in business sales of 1.5 percent and a decline in unemployment last month to 5.9 percent, once more proved that the expansion has not gone limp yet.
To borrow a phrase from the stock market, Friday was something of a ``triple witching hour'' for statistics. Government officials also reported that the US trade deficit widened to $15.71 billion in June, possibly the worst shortfall ever. And wholesale prices, measured by the producer price index, rose a modest 0.2 percent last month. Large price jumps for gasoline and heating oil were offset by slightly lower food prices.
If the economy is doing pretty well, why does the recovery get a poor rating from so many people?
Nicholas Perna, chief economist of Connecticut National Bank, suspects the reason is the sharp structural changes that have taken place in the economy. Many businessmen and their employers get hurt by these unexpected shifts.
The dollar strengthened dramatically in the first half of the decade, before plunging back downward after February 1985. Oil prices surged upward briefly to $40 a barrel early in the 1980s before plunging to $10 a barrel last spring. Now they are above $20 again.
When the dollar strengthened, imports suddenly became tough competition for some domestic producers, and exports more difficult. Oil price changes made some machinery obsolete if designed for the wrong level of fuel prices.
This recovery, Mr. Perna says, is ``so different.''
Despite such difficulties, the economy on average has been growing at approximately its long-term growth potential of about 2.5 percent during the present expansion. And that's not bad at all.