Falling interest rates appear to have pulled the national economy out of the doldrums during the fourth quarter of 1984 (Table 1). After a lackluster third quarter, short term interest rates dropped over 200 basis points, thus fueling a resurgence in consumer and business spending. Real GNP grew at a solid 3.9% annual rate during the fourth quarter, lifting economic activity to 5.6% above the fourth quarter 1983 level. I ndustrial production also posted healthy gains in the fourth quarter after several monthly declines.

     The nation's economic expansion is now over two years old. At this stage of the business cycle inflationary pressures have usually begun to appear. The December 1984 Consumer Price Index, up 3.8% over the year earlier figure, indicates that price increases remain modest. There are two key reasons for this positive development: wage increases have been very moderate (particularly in manufacturing) and the rising value of the dollar has reduced the price of imports. Many economists are forecasting a decline in the inter­national value of the dollar. Such an event would raise the price of imports and allow domestic manufacturers, hard pressed by foreign competition, to increase their profit margins. A good indication of the core or underlying inflation rate in the economy can be found in the service sector. The services component of the C.P.I., where foreign competition has little or no impact, rose 6% during 1984. An appreciable decline in the value of the dollar against the other major currencies would push the overall inflation into this 6% range.

     The Central Wisconsin economy was also affected by a slow down in economic activity during the second half of 1984. Although the regional unemployment rate is down 2.8% from a year ago, employment growth has slowed to 2.2%. Portage County employment grew 5.6%, with Wood County payrolls up 2.8% and Marathon County recording virtually no change.

     The unemployment rate drop in Marathon County is due solely to a 4.1% decline in the labor force. Wisconsin as a whole experienced a similar trend. Employment in the state is a minute .1% above the 1983 level. However, because of a 3.5% decline in the labor force, the Wisconsin unemployment rate is well below the year earlier figure. A falling labor force suggests out-migration, secondary earners withdrawing from the labor market or possible statistical problems.

     Payrolls are greater than a year ago for all major sectors in the Central Wisconsin economy. Construction and trade continue to post the largest percentage gains while manu­facturing employment rose only 2.4%. This pattern is clear evidence of a maturing expansion.

    Among Central Wisconsin's key industries only paper production employment is up significantly from a year ago. The lumber and wood products industry, a driving force throughout the expansion, posted a modest 2.6% gain. Food processing and financial services continue to lag the rest of the regional economy, with the former registering a slight decline.

    The business confidence index, based on a survey conducted in December 1984, indicates that Central Wisconsin executives detected a slow down in economic activity. The index registered a mild decline in economic conditions at both the national and local levels. Business executives are anticipating a slight improvement in conditions in the months ahead and are particularly optimistic about their respective industries.

     Portage County and the Stevens Point area continue to exhibit the strongest growth in the region. Led by the Stevens Point Downtown Mall related construction and a surprisingly strong manufacturing sector, Portage County employment recorded gains in all major sectors. Further evidence of economic strength included an 8.9% decline in local unemploy­ment claims and increases of 5.9% and 8.0% in bank deposits and bank loans, respectively.

     The full impact of the mall project is beginning to be picked up in the economic indicators. Nonresidential construction permits jumped from 2 in the fourth quarter of 1983 to 10th is past quarter. The estimated value of new nonresidential construction was over $10 million. This construction activity is, of course, temporary. When the project is completed construction permits and jobs will drop. However, permanent jobs will then begin to show up in retail trade. The recent experience of the Wausau economy is a good example of this sequence of events.

     Signs of a declining growth rate in the local economy did begin to appear in the fourth quarter. Help wanted advertising dropped slightly from the 1983 level. Claims for public assistance at the Stevens Point office rose for the first time since the recession. Further evidence of a slow down can be found in the residential construction statistics. New permits declined 12.9% from the year earlier figure, despite relatively mild weather.

     In general, the fourth quarter capped a very solid year for both the national and Central Wisconsin economies. 1984 was marked by a significant increase in regional jobs and construction activity. However, the pace of economic expansion began to slow in the second half of the year, particularly in Marathon County. After accounting for seasonal factors, the Stevens Point area maintained solid growth during the fourth quarter. Nevertheless, signs of a less vibrant local economy are beginning to show up in the quarterly indicators.