|
The national economy is forecasted to grow at
a slightly more rapid rate in 2003 than it did in 2002. The Congressional
Budget Office, CBO, projects that nominal GDP will expand at a 4.2 percent
rate in 2003, compared to an estimated 3.6 percent in 2002. It should be
noted, however, that the first quarter of 2003 was not a strong period of
economic growth. If this forecast is to be achieved then the remainder of this
year must see an acceleration in economic activity. Another key forecast by
the CBO suggests that the Consumer Price Index will rise by a modest 2.3
percent in 2003. This would represent a slight increase from the approximate
1.6 percent rate of last year. Thus, inflation appears to be in check.
Interest rates, both short-term and long-term, as proxied by the three-month
Treasury Bill rate and ten-year Treasury Note rate, are forecasted to be
around 1.4 percent and 4.4 percent, respectively in 2003. Thus, borrowing
rates should remain at favorable levels throughout the remainder of the year.
The Federal Reserve, our nation's central
bank, considered the economy to be very weak at the beginning of the year. One
might think the swift resolution of the Iraq military operation, along with
reduced fears about energy disruptions, would provide a boost to consumer and
business confidence. When uncertainty is reduced, consumers and businesses
tend to be less hesitant about spending and investing. This increase in
activity would help boost employment and income growth rates. However, it
should be noted that there is little evidence currently to suggest that the
reduced uncertainty is having much of an impact on economic activity.
Relatedly, consumer spending appears to be
moving forward albeit at a very modest pace. However, some types of consumer
spending have taken some big hits. The tourism and air transportation
industries have seen reductions in activity. This is primarily due to the
threat of terrorism and the SARS outbreak. In addition many businesses are
struggling with overcapacity and will not expand their capital spending and
hiring until such time that demand warrants such action. Moreover, rising
health care costs and the inability to raise prices has tended to place
downward pressure on corporate profits, which also inhibits corporate capital
spending.
On the brighter side of the picture the economy has a number of positive
things going for it as we progress through 2003. Productivity growth has been
strong which bodes well for the long-term health of the economy and the
nation's standard of living. Inflation, as mentioned earlier, is low but
more importantly the inflation rate is relatively stable which makes planning
easier for consumers and businesses, helping foster long-term economic
relationships. Further, the large amount of monetary and fiscal stimulus being
applied to the economy is another positive sign. The Federal Reserve's
accommodating monetary policy and the federal government's deficit spending
will bolster the economy. These items should more than offset the fiscal drag
created by the states' budget situations. Lastly, the dollar has been
trending lower which should help the manufacturing sector. Manufacturing
dependent states like Wisconsin should therefore benefit greatly from this
trend. |
