Economist Views Business Climate Through Fresh Lens
TAKING the measure of the economy using housing starts and auto sales is as out of date as using the yardsticks of pig iron production and railroad operating income.That's what Nuala Beck, an economist based in Toronto, maintains. "Using the old economic indicators such as car sales is the same as teaching children that the earth is flat," she says. Formerly director of research at a brokerage house, Mrs. Beck now runs her own firm, Nuala Beck & Associates, advising corporations and pension funds in Canada and the United States. The "new economy," she says, should be measured by such factors as computer production, construction of medical facilities, and the high-tech trade balance. Beck gives examples of how the economy has evolved in the US: * The computer equipment, semiconductor, and computer services industry now employs more people than the auto, auto parts, steel, mining and petroleum, and natural gas industries put together. * The information and communications sector now accounts for 9.2 percent of US gross national product. It is larger than the entire US construction industry, which has declined to somewhat more than 7 percent of GNP. * More people work in accounting firms than in the whole US oil and gas industry. * The motion picture industry employs more people than the US auto parts industry. * By the end of 1991, the US aerospace industry - which already employs more people than the automobile industry - will be larger than the US auto and auto parts industries. * And the aircraft industry is smaller than the $52 billion-a-year computer professional services industry. "The economy has evolved from our notion of what it was," Beck says. "And these new industries have different business cycles. Take the motion picture industry. New releases are timed to two periods of the year: Christmas and when kids get out of school. The auto industry is tied to the new model year in September and October," says Beck. "And because these industries are so large they make things happen elsewhere in the economy. Here is her list of "the four engines of the new North American economy." 1. Computers and semiconductors. 2. Instrumentation. This category includes engineering and scientific equipment as well as environmental monitoring equipment. 3. Health and medical. 4. Communications and telecommunications. She includes in this category the electronics of aircraft, guided missiles, and space vehicles, as well as entertainment. The fastest growing industry has been the computer equipment sector with a "structural growth rate" of 32.4 percent per year over the last 15 years in real terms (adjusted for inflation); the slowest growing include automotive stampings - 1.3 percent real growth - and canned fruits and vegetables - only 1 percent real growth. "Nothing goes up forever," notes Beck. "The computer sector is actually decelerating even though it still has a high growth rate. One group which is growing at an accelerating rate is in machinery for the paper industry. That has to do with the environment because the industry has to change its equipment to make the paper environmentally friendly," she says. "Many companies in the new economic sector wouldn't recognize a household if they tripped over one," says Beck. "Retail sales still matter but they're not as important as they were. Retailers don't believe that yet though, and those who suspect it wish it weren't true." The recession in Canada and the US is over, according to her reckoning. Beck predicts a vigorous recovery in North America. And in spite of headlines about plant closings, Canada is benefiting from free trade with the US, she says. "Free trade has meant that foreign investment into Canada has reached the highest level in our history $5.7 billion last year net of plant closings.