Americas economy still envy of world
With the U.S. economy getting off to a relatively slow start in the first quarter, I'm frequently asked whether my optimistic outlook for 2007 is warranted.
Despite new stock market records and continued low unemployment, there is increasing concern about the economy's ability to sustain its dynamics.
Such concerns are abetted by fear of a falling dollar and the continued burden of the budget and trade deficits; and most of all, pessimism about the overhang of the unresolved war in Iraq. Many of those to whom I have spoken believe the debt incurred in the Iraq imbroglio is probably much higher than the amount to which the government admits, with no end in sight.
What concerns the questioners most immediately is the accelerating slowdown of residential construction and existing home resales. They feel the combined retrograde of the housing sector and the fall-off in automotive production could lead to a recession similar to the high-tech bubble implosion of 2002-03.
What is even more worrisome is the creeping inflation in everyday consumer goods, not to mention record prices at the gasoline pump.
There is almost no confidence that an alternative energy policy is in the wings. Few, except those with vested interests, believe ethanol is the solution; but believe it has instead added to the cost of gasoline and other distillates.
This is translated into further skepticism regarding reprieve from energy shortages and high prices. A drive toward coal liquefaction is being met head-on by environmentalists.
The good news is that, barring a major world geopolitical crisis, the following strong points will secure America's positive economic outcome for 2007:
Consumer spending continues to maintain a remarkably strong pace. This reflects an exceptionally low unemployment rate (4.6 percent), while wage increases put more money into the spenders' pockets. The 3.8 percent improvement in first quarter spending over 2006 is double the gross domestic product growth generated over the year's first three months.
Despite the 17 percent drop in res idential construction, commercial, industrial and infrastructural expenditures are providing a major offset to the housing downdraft. The industrial sector as a whole is staging a comeback powered by all aspects of energy development, such as electric power, oil production, refining expansion and maintenance, and the transmission of oil and gas. Also, the aircraft and railroad transportation sector, shipbuilding and pulp and paper are doing their part. With lead times lengthened, domestic manufactured products are in increasing demand.
Although capital spending got off to a slow start as major corporations assessed the lay of the land, this trend is starting to reverse as inventories are rapidly declining. Exports are exceeding expectations due to a devaluated dollar and a vigorous demand for America's airplanes, construction machinery, industrial products and armaments by the world's emerging nations, which are pouring record financial liquidity into the globe's economic arteries.
U.S. corporate profits continue to set new records as many of America's leading multinationals generate increasing revenues abroad. Domestic profit growth is rebounding, after a temporary slump at the end of last year.
In a nutshell, America's 300-million-strong population and its economy are still the envy of the world.
Editor's Note: This article was previously published in the The Desert Sun in Palm Springs, Calif.
- Morris R. Beschloss graduated from the University of Illinois' College of Communications in 1952.
He is a columnist for the Desert Sun and publishes two newsletters for the pipe, valve and fittings industry. He can be reached at email@example.com or 760-324-8166.