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The recent
expansion of the economy has been characterized by pundits as a jobless
recovery. Even though the economy has been growing at around 3 percent rate,
the public does not perceive the current period as being particularly robust.
Why is this the prevailing perception? Even though the national and regional
economies are moving forward in terms of the creation of goods and services,
this expansion has not produced many new jobs. For example U.S. payrolls are
only 0.1 percent higher than a year ago. In addition, there is great concern
and uncertainty on the part of the public about the Iraq situation, and the
direction of the nation's financial markets. These items all have conspired
to cast a pall over the economy and to lower expectations about the future.
What
do some of the major economic indicators have to say about the direction of the
U.S., state, and local economies? The following will give us a snap shot of the
economy. The most recent average workweek hours and initial unemployment claims
numbers suggest that the economy is not likely to be generating a large number
of jobs. Likewise, the national help wanted index signals weak job growth. More
importantly the low number of new jobs reinforces the idea that the overall
level of economic growth will be modest.
There are many
more indicators that suggest the economy is not likely to shift into a high gear
soon. For example the sharp decline in consumer confidence and consumer
expectations reinforce this attitude. Moreover, the general decline in stock
prices and the commensurate decline in wealth will also serve to dampen activity
and confidence. These perceptions about the economy are already being reflected
by weak retail sales activity. In addition, consumers are not the only ones
signaling weak to moderate growth in the quarters ahead. Business firms, through
the purchasing manager index, are only increasing their orders at a very modest
rate. In a similar vain the amount of production coming out of our nation's
factories suggests that economic growth will be weak to moderate over the next
several quarters.
However,
there are a few indicators that paint a somewhat better picture of the economic
situation. The low inflation rate helps to create a stable economic environment,
conducive to the formation of long-term economic relationships. The unemployment
rate, while rising nationally, is still considered low from a historical point
of view. Additionally there appears to be much liquidity in the economy, as
evidenced by the solid growth rates in the money supply and in banking lending.
Both of these items point towards a strengthening of the economy. Moreover,
construction activity has been bolstered by low interest rates and the
availability of credit. Another real bright spot for the future is that the
productivity rate gains made in the late 1990's are holding up. The Federal
Reserve reports that productivity gains will once again be strong in 2002. This
is very important because productivity ultimately determines the standard living
for our country.
In sum, it seems very likely the economy is going to experience weak to moderate
growth in the quarters ahead. Until uncertainties surrounding the Iraqi
situation, corporate profitability, and the nation's financial markets are
resolved, look for the economy to be in a slow to moderate growth mode. Another
factor to consider in Wisconsin's case is the budget problem facing the state.
In the absence of strong economic growth, rising taxes or cutting programs are
necessary to make up the shortfall. Unfortunately either one of these actions or
both will only serve to damper economic activity in the state. |
