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New Economic Signs Point to Prosperity

BARELY has a major national issue been presented in so confused and distorted a way as have recent developments in the United States economy. It took Saddam Hussein, the collapse of the Soviet Union, the start of the 1992 campaign, and a big dose of the journalistic passion for hyperbole, to produce this spectacular case of national economic misunderstanding.For more than a month now, the economy has been portrayed as deeply troubled. It's been hard to find a story which hasn't led with one or more of the "three G grim,glum," and "gloom." In fact, however, the preponderance of economic data has shown the economy moving out of the relatively mild recession of late 1990 and the first half of 1991 - although the recovery hasn't been as rapid or strong as we would like. The US economy is large and diverse, which means that conditions always vary from one part of it to another. Besides this, we are now presented with a blizzard of economic statistics, many reporting month-to-month changes which are unreliable: The amount of measurement error - these are often survey data - can easily exceed the reported shift. We need to stand back, and look broadly at what the key indicators tell us. Real GNP is shown to have grown sluggishly in the first nine months of last year, to have declined by 1.6, 2.8, and 0.5 percent over the next three quarters, and then to have ended its slide and grown by 2.4 percent in the last quarter. Personal consumption expenditures, in inflation-adjusted terms, fell by 3.4 percent in the last three months of 1990 and by 1.5 percent in the first three of this year; but they rose by 2.5 and 3.8 percent, respectively, in the two most recent quarters. A new measure of overall economic performance being introduced by the US Department of Commerce - the Gross Domestic Product (GDP) - shows the same general picture, although it puts the recession at once somewhat deeper and shorter. (The GDP counts all the goods and services produced by workers and capital in the US, whereas the GNP comprises all goods and services produced by workers and capital supplied by US businesses.) The newly released GDP data depict the economy contracting in real terms by 3.7 percent in the fourth quarter of last year and by 3.0 percent in the first of this year, but then rebounding 1.2 percent in the second and 2.3 percent in the third. Similarly, personal income has been rising, slowly but steadily. Retail sales, seasonally adjusted, reached their trough last December and January and, despite some "static" in the month-to-month figures, have since trended upward moderately. Durable goods orders show the exact the same progression, although the huge jump reported for July, a statistical illusion, confuses what is otherwise a clear upward direction in the trend line. The index of total industrial production recorded its recessionary low in March and has since risen modestly. The unemployment rate for all workers stood at 6.7 percent in October. That's one point above what it was a year ago but marginally below the high reached last spring and, most tellingly, below what the rate was for l984, l985, and 1986 (when it was, respectively, 7.4, 7.1, and 6.9 percent). Who would suspect, based on recent reporting, that unemployment is significantly lower now than in 1984, the time of "morning in America?" Finally, among the major indicators, inflation - which had been trending upward in a worrisome manner from 1986 through 1990 - has been cut in half and now seems comfortably in check. It's no mystery, though, why much of the American public believes the economy is souring. The US's economic woes have been exaggerated by a media now freed from preoccupation with the Gulf war and events in the former Soviet Union and by Democratic politicians eyeing the presidency. The composite picture painted by the above data does not show a national economy in trouble, but instead shows it trending upward modestly. In the months ahead these facts will inevitably assert themselves.