The national economy continues to drift along with very little prospect that it will boom anytime soon. During the second quarter of the year the government reports that the economy grew by a puny 1.4 percent. This compares favorably to the recently revised 0.7 percent rate of GDP growth during first quarter of 1993, but the 1.4 percent rate underscores the hesitance of the economy to move forward.
 

     The nation's central bank, the Federal Reserve, forecasts that Real Gross Domestic Product will expand by 2.25 to 2.75 percent during 1993 and will do only modestly better in 1994 at 2.5 to 3.25 percent. Likewise, the unemployment rate for the country should average out at a stubbornly high 6.75 percent during the year. This represents only a small improvement over 1992.

     Moreover, the Federal Reserve estimates that the 1994 unemployment rate will fall to between 6.5 and 6.75 percent. Once again great improvement in the economy is apparently not in the cards. With regard to inflation, chairman Alan Greenspan warns that the Federal Reserve will not hesitate to tighten credit conditions and raise short term interest rates if there is an appreciable rise in the inflation rate. Their forecast is that the Consumer Price Index will expand by a modest 3.0 to 3.25 percent next year. However, most observers think that an outbreak of high inflation is not likely because competitive forces and excess capacity will keep wages and prices in check. And therefore many analysts do not expect inflation to reach these levels in 1994.

     Why is the national economy so languid? First, there exists an excess supply of nonresidential buildings in many parts of the country due, in part, to the financial excesses of the 1980's and, in part, to past regional recessions which have had a detrimental impact on construction activity and employment in the current period. Second, households and businesses, while making progress in reducing high debt levels accumulated during the 1980's, are still saddled with excessive debt payments. This high debt service lowers net cash flow and places a drag on current consumption and investment spending. Third, the transformation from a cold war to a peace time economy is coming at no small cost. Defense workers are being laid off causing a commensurate decline in their consumption and income levels. Fourth, exporting, which has accounted for a large portion of our economy's growth during the past few years, has slowed because many of our important trading partners are in recession. Japan, Germany, and Europe, in general, are hurting economically thus reducing demand for products we export. Fifth, uncertainty surrounding the President's economic package and health care reform are causing many businesses to take a wait and see attitude. Firms, unsure of how the changes will impact their companies, have put business plans on hold and, as a result new employees are not hired and the economy suffers.

     Further, many analysts see the President's economic plan dragging the economy down starting sometime in 1994. Specifically, cuts in spending and higher taxes will depress activity. The lower interest rates that are expected to result from these attempts to slow the growth rate of the deficit are not thought by many to be a powerful enough counterweight to offset the dampening influences of the economic package as a whole.

     Wisconsin and our region have done remarkable well during the past several years. Most measures of employment and income growth suggest that the state and region have outpaced the nation by a considerable margin. Most of the negative factors alluded to earlier are not as prominent in our economic landscape as elsewhere in the nation. Further, even though the world economy is weak, exports here have benefited from the lower value of the dollar and strong demand for our products. Wisconsin was and still remains a capital goods intensive economy and, as a result, low interest rates are a key factor in our recent success. Low rates help our businesses finance uneven cash flows during the production cycle and help customers in the purchase of Wisconsin products.

     The great flood of 1993 will cause the Midwestern economy to suffer, at least in the short run. However, a flurry of activity will result when the rebuilding process starts in earnest sometime this fall. Fortunately, the damage to the Wisconsin economy, while significant, is primarily isolated in the agricultural sector and should not be great enough to derail the state economy. So, in conclusion, unless some unforeseen political or economic shock hits, the economic performance of the state and region should continue to outpace the rest of the country.