Economic Growth Marches on into New Millennium
E. Gonzalez, Dr. Juan, Business Perspectives
As we approach the end of the millennium, the economic expansion that the Tennessee Valley and the nation enjoyed during the 1990s continues on. Over the past two or three years, economists (including this writer) had forecast a slowing of the U.s. economy and an increase in inflation that did not happen. Instead, U.S. Gross Domestic Product (GDP, the total dollar value of all goods and services produced in the U.S.) has continued to grow at about a 4.0 percent rate, while inflation has remained at very low levels.
To some extent, this expansion has been the result of a fortuitous set of events. The Asian financial crisis that hit world markets in late 1997 did not cause a worldwide financial meltdown, thanks in part to some deft handling of the situation by the Federal Reserve (Fed). It did, however, cause a flight of financial capital from Asian and other countries to U.S. financial markets. At the same time, the sharply lower levels of world demand led to a situation of worldwide excess capacity and declining import prices for the U.S. Oil prices are a case in point, with prices dropping from over $20 per barrel in late 1997 to the low teens by mid-1998.
The suddenly severely competitive international markets helped keep the lid on prices in the U.S. in spite of increasingly tight U.S. labor markets. This led to declining inflation which, along with the foreign capital flowing into the U.S., led to lower interest rates, a growing stock market, and an overall growing national economy. But, not all sectors of the economy benefited from this situation. By the second quarter of 1998, the trade deficit was soaring, with U.S. export growth shrinking markedly because of declining Asian demand. The U.S. oil industry was deeply hurt by the shrinking oil prices, along with the prices of other commodities such as steel and chemicals, when the sudden world overcapacity in those industries led to plummeting prices. Not only did low-end manufacturing such as apparel see intensifying competition, but both the U.S. electronic components and airplane industries saw a significant curtailment of demand as their previous fast-growing sales to Asia evaporated. Overall, however, the beneficial effects of declining exports kept domestic demand at such high levels that demand led the way in promoting strong national economic growth. 
The effects of the Asian situation on manufacturing were of particular importance to the Tennessee Valley, since manufacturing constitutes a much higher percentage of its economy than of the nation's economy. (About 28.0 percent of total Gross Regional Product is in manufacturing as compared to about 20.0 percent nationally.) For instance, the Valley has a high concentration of construction-related manufacturing, including construction materials, carpets, furniture, and appliances. With interest rates declining throughout 1998, along with tight job markets and high consumer confidence, the housing market became spectacular. The new federal highway bill will also supply impetus to the construction industry. Besides strong Valley construction activity, overall national activity provided a big boost to the Valley's construction-related manufacturing.
Retail sales were also strong and provided a strong market for the Valley's manufactured products, especially its durable goods (those that are meant to last three years or more and are usually financed, such as autos and appliances). Motor vehicles, in particular, have been selling at record highs. However, the Valley has not fully shared in this growth due to sales problems with the models produced at the Valley's two major assembly plants, Nissan and Saturn, located near Nashville.
Indeed, it was the development of the regional auto industry that provided the impetus that created the boom economic conditions in the Tennessee Valley during the early 1990s. In particular, the opening of the Saturn plant provided a big boost and accounted for over 8,000 new jobs by itself and even more jobs through its suppliers. …