US Expansion Puts Candle No. 5 on Cake
HAPPY anniversary, economic expansion. This month the upturn in the business cycle turns five years old. That's getting antique by post-World War II standards.
According to Brian Westbury, chief economist for the Republican majority of Congress's Joint Economic Committee, the recovery is ''very, very weak.'' He notes that the average annual pace of job growth during three previous long recoveries was 3.29 percent a year. Since President Clinton took office in January 1993, job growth has run 2.43 percent a year.
If new jobs had been added at the pace of the previous long recoveries, there would be 3.1 million more jobs in the nation, says Mr. Westbury. This gap was 3.5 million in January before the surprise growth of 705,000 jobs in February reported last Friday, news that upset investors in the stock market.
Assuming that real growth in gross domestic product - the output of goods and services - comes in at the consensus forecast of 1.9 percent this year and with output up 1.4 percent last year, the nation will experience its ''slowest eight-quarter period of real growth since World War II,'' Westbury adds.
Mr. Clinton paints a different picture. In his annual economic report last month, he notes: ''Overall, the American economy is healthy and strong. In the first three years of this administration nearly 8 million jobs were created, 93 percent of them in the private sector. The so-called 'misery index' - the sum of the inflation and unemployment rates - fell last year to its lowest level since 1968. Investment has soared, laying the basis for future higher economic growth. New business incorporations have set a record, and exports of American-made goods have grown rapidly. Ours is the strongest and most competitive economy in the world - and its fundamentals are as sound as they have been in three decades.''
With a presidential election coming up, Westbury's job is to paint a grim economic picture; Mr. Clinton hopes a cheery economic view will help his reelection.
Most economists expect this expansion to continue. ''Certainly there are none of the traditional signs [of impending recession] like inventory speculation, rampaging inflation, or the Federal Reserve stomping on the brakes with soaring inflation rates,'' points out Paul Boltz, financial economist of T. Rowe Price Associates Inc., an investment firm in Baltimore.
Noting that the 1982 recovery lasted more than seven years, Dr. Boltz cites three reasons for longer economic upturns: (1) The United States economy is now overwhelmingly a service economy, and the service sector has historically been and remains more stable than the manufacturing and mining sectors. ''Now nearly 80 percent of all payroll jobs are in service industries, providing a stability to the economy missing in earlier eras,'' he says. (2) Businesses have learned how to control inventories much more tightly, thereby avoiding Draconian production cuts to bring them into better alignment with final sales. (3) ''Credit must be given to the new strategy of monetary policy originally developed by Fed chairman Paul Volcker and brilliantly executed by his successor, Alan Greenspan. The general idea is that since booms invariably lead to busts, a better monetary policy would seek moderate but steady economic growth as its objective.''
That policy, though, did produce what Lacy Hunt, chief economist for HSBC Securities Inc. in New York, describes as ''the weakest of the postwar recoveries.'' Further, median household income is lower than when the recovery started. Corporate profits are ''among the best of any recovery.'' Inflation shows no sign of accelerating, as usually occurs at this age in an expansion. And interest rates are back about where they were at the start of the recovery, again a unique situation.
Mr. Hunt sees a 35 percent chance of recession this year. But he is forecasting weak growth at an annual rate of 1 percent in the first half, and 0.5 percent in the second half. He was not impressed by the rapid February job growth. Some of it, he says, was related to the need to move snow, repair roofs and burst pipes, and also to faulty seasonal adjustment of the numbers.
Another Wall Street consultant, Arnold Moskowitz, figures the surge of campaign workers bloated the February job numbers.
But Sam Nakagama, a Wall Street economist, sees the economy as ''in better shape than most people had imagined.''
The president is probably chanting: ''Long live the recovery.''