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When
compared to other states, Wisconsin's economic performance was very robust in
2004. Recently released figures from the U.S. Bureau of Labor Statistics
indicate that Wisconsin came in ninth place in terms of jobs creations. Only
eight other states exceeded the state in job creation. The government reports
that Wisconsin added about 64,000 net new positions, a gain of approximately
2.3 percent. In contrast, the nation added about 1.7 percent to its
payrolls.
What is
particularly pleasing about this growth is that manufacturing employment is
said to have rebounded by almost 16,000 jobs. This represents a healthy gain
of over 3 percent. Given the state's high dependence on manufacturing
employment, this indeed is welcomed news. Wisconsin ranks second among the
states in terms of its dependence on manufacturing as a source of employment.
In
addition, the Wisconsin Department of Revenue indicates that in 2004 Wisconsin
experienced solid economic growth in employment and income. Moreover, the
agency reports that this trend is likely to continue well into 2005. The
Wisconsin Department of Revenue is forecasting that job growth will be
approximately 1.8 percent during 2005, and wages and salaries are forecasted
to grow by approximately 6 percent. Once again, if this forecast holds true,
it would be welcomed news for the state.
Why has
Wisconsin's and the nation's economy rebounded? Because of Wisconsin's
dependence on manufacturing, the state benefits greatly when the national
economy picks up steam. In other words, Wisconsin manufactures products that
are much in demand at the beginning of an upturn in the national business
cycle. In addition, the depreciation of the dollar helps Wisconsin's
exporting activity by making its products less expensive to people living
outside the country. The next question to be answered is why has the national
economy gained economic momentum.
The reasons
for this overall expansion in the national economy are many. A few of the
more important reasons are as follows. The Federal Reserve reports that there
has been a strong upward trend in spending by households and in their income
levels. Moreover, business firms have definitely pulled out of their
investment slump. It appears that business firms, in anticipation of profits,
are once again investing in factories, plants, equipment and inventories. The
economic slump in the early 2000s was predicated upon a retrenchment in
business investment. The Federal Reserve also credits favorable monetary
conditions for helping foster the improved climate. Interest rates are still
relatively low, and credit availability remains abundant. Also, exceptionally
strong productivity gains over the last four years have contributed to this
expansion. On average, U.S. worker productivity has grown at over four
percent since 2000. In the long-run, this translates into higher corporate
profits and income growth for workers. The technological revolution in
computer aided business procedures has played a key role in this development.
Another
factor playing a key role in the favorable growth forecast is the prospect for
low inflation in 2005. The Federal Reserve and most economic analysts see
inflation being lower in 2005 than the 3.3 percent in 2004. Even though the
dollar has declined by approximately 30 percent against a basket of major
foreign currencies, which makes imports more expensive, other factors will
mitigate this upward pressure on prices. For example, there is still a
significant amount of capacity left in the U.S. economy. In other words,
there remains a good deal of underutilized resources. Moreover, competition
is so strong in most industries that importers are very reluctant to raise
prices in fear of losing market share. Lastly, productivity growth, having
been so strong for so long, allows for the dissipation of higher input
prices. Simply stated, if workers are more productive, costs can be spread
out over a greater number of units. Thus, firms can keep prices down and
still cover the higher production costs. Thus, unless some unforeseen
economic or political crisis occurs, the most likely economic prognosis for
the state and nation appears to be solid economic growth in 2005.
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