An Economy That Won't Wear out ; US Growth Is Roaring at 4.8 Percent, but Continued Low Inflation Rates Contain Come Concerns about Overheating
Ron Scherer, writer of The Christian Science Monitor, The Christian Science Monitor
If economists gave out awards, the 1990s would go down as one of the best decades of all time.
The economy has ignored the business cycle and continues to grow and grow. Inflation, the bane of Federal Reserve bosses, appears tamed. And the financial markets are rewarding investors with handsome returns.
This picture of an economic nirvana - an era even better than the postwar 1950s - now looks as if it will continue into the next millennium. Yesterday, the government reported the third-quarter gross domestic product (GDP) thundered ahead at a 4.8 percent annual rate - a pace fast enough to cause concern about an overheated economy. But the report showed inflation for the quarter dropped to a 1.6 percent annual rate, reducing some of the anxieties.
With this momentum, the economy heads into 2000 in championship mode. "This is the expansion of the century," says Brian Fabbri, chief economist at Paribas Capital Markets in New York.
Despite this good economic news, most economists still expect Federal Reserve Chairman Alan Greenspan will want to hike interest rates next month. The economy is far stronger than Mr. Greenspan feels comfortable with, and the stock and bond markets are expecting the Fed to raise rates. In fact, yesterday the Dow roared 200 points higher by midday as investors were cheered by the economic news - especially a government report that showed labor costs rose by 0.8 percent, less than expected.
"There are rumors that the Fed is behind the curve on inflation, and that is a situation where the Fed can lose credibility if it does not respond," says Lyle Gramely, a former Fed governor, now a consulting economist at the Mortgage Bankers Association.
Behind the latest economic surge is robust consumer spending. Businesses, confident that consumers will keep buying, increased stockpiles in advance of the holiday season. This inventory accumulation added 0.7 percent to the GDP numbers.
"This economy is just a growth machine," says Stan Shipley, an economist with Merrill Lynch & Co. in New York.
With the world economy starting to pick up, US exports also rose - climbing at a 12.4 percent annual rate after growing at only a 4 percent rate in the second quarter. But imports rose even more, up 17.2 percent. The net effect was a reduction of about one percentage point in economic growth.
If the Fed raises rates, it would be the third rate hike this year. …