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Real GDP grew by an estimated 1.2 percent from June 2000 to June 2001.
However, during the April-June time frame of this year, the economy's
rate of expansion contracted to a minuscule 0.2 percent.
In addition industrial production on a year over basis fell from 144.8
to 142.5, or by 1.6 percent. Meanwhile,
energy prices helped to push the Consumer Price Index up from 172.3 to 178.0,
a 3.3 percent gain in the year over comparison.
Finally, the U.S. unemployment rate rose from 4.2 percent to 4.7
percent over the past twelve months.
The U.S. Economy
has clearly slowed down from the robust period of late 1995 to early 2000 when
quarterly changes in real GDP often times reached or exceeded 4.0 percent in
terms of annualized growth rates. Likewise,
Wisconsin's economy has slowed down. This
is evidenced by the increase in Wisconsin's unemployment rate from 3.8
percent to 4.5 percent from June 2000 to June 2001.
Moreover, preliminary estimates show that Wisconsin's total
employment fell by 0.1 percent over the course of a year.
Meanwhile, taxes collected by the Wisconsin Department of Revenue
during the July 2000-April 2001 time period declined by almost 6.0 percent
from a comparable period during fiscal year 2000.
In particular individual income and corporate tax collections were off
by 8.7 percent and 12.6 percent respectively.
As a matter of fact the only tax collections figures that showed an
increase were the general sales and liquor taxes.
The present
economic environment was created by the convergence of a number of factors.
Time will not allow for a full discussion of these matters.
However, a brief overview of the situation is warranted so that we may
gain an understanding of the current economic environment and where the
economy may be headed. The decade of the 1990s saw an emergence of technology based
investment opportunities for businesses.
Business firms poured massive amounts of money into these projects in
the hope of generating huge returns. The
financial markets of course fueled this expansion as investors were mesmerized
by the prospects of high returns. To
a very large degree the rapid expansion of the economy was predicated upon a
financial bubble.
Soaring equity
values made it relatively easy for firms to invest in new technologies and to
expand capacity. Soaring stock
market prices boosted wealth and consumer spending.
For example, new homes sales and durable goods were stimulated by this
situation. However, the ability
of firms to increase capacity eventually out paced demand.
Also playing a major role was the Federal Reserve.
The Fed thought the economy was on the verge of over heating and thus
tightened credit conditions. In addition, higher energy prices cut into the profitability
of firms, which also lowered the expected rate of return on equities.
In response to falling profitability, stock market prices have tumbled
and firms have cut back on their investing plans and laid off workers.
Excess capacity remains a significant problem for many industries. This is especially true for the manufacturing sector and in
particular for durable good producing firms.
Wisconsin's
economy, like other states in the Great Lakes area, remains highly influenced
by interest rate conditions, energy prices and the relative strength of the
dollar vis-a-vis other major currencies.
To this day Wisconsin is much more dependent on manufacturing than the
nation as a whole. For example in
Wisconsin, manufacturing's share of total employment was 21.8 percent in
2000. In comparison, manufacturing's share of total employment
for the U.S. was 14.0 percent in 2000.
As it turns out, manufacturing activity is very sensitive to credit
conditions, energy prices, and the strength of the U.S. dollar.
Given the aforementioned plus other variables, the Wisconsin Department of
Revenue estimates that total nonfarm employment will grow by about 0.5 percent
this year and may fall by 0.1 percent in 2002.
Further, they estimate that the unemployment rate will come in at 4.5
percent in 2001 and about 5.5 for 2002. In
comparison, the U.S. will see a 0.7 percent increase in employment in 2001 and
a 0.6 increase in total nonfarm employment in 2002.
In addition, the U.S. unemployment rate is forecasted at 4.7 percent in
2001 and 5.5 percent in 2002. In
sum, the forecasting model employed by the Wisconsin Department of Revenue
suggests that the remainder of 2001 and a good part of 2002 will be a sluggish
period for the state and nation.
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