The nation's real Gross Domestic Product grew at a very weak 0.7 percent rate during last quarter.  Further, from fourth quarter 2001 to fourth quarter 2002, real Gross Domestic Product expanded by only 2.8 percent.  Moreover, the U.S. unemployment rate rose from 5.4 percent to 5.7 percent over the same period.  Finally, U.S. employment growth from December 2001 to December 2002 was nonexistent!  Wisconsin faired somewhat better than the nation in terms of employment growth.  Total employment over the period was estimated to have risen from 2.8 million to 2.9 million, or by 1.8 percent.  Though the unemployment rate in Wisconsin rose from 4.4 percent to 4.9 percent, it remains lower than the U.S. rate

From a historic standpoint this has been an anemic period of growth for the national and state economies.  What are the factors that are dampening economic activity; what are the prospects for the future?  Many economists cite the Iraq situation as a major contributor to the cloud that now hangs over the economy.  Economists of this persuasion argue that once the Iraq war is over, uncertainty concerning corporate profits will be reduced.  This will prompt business firms to increase investment, and eventually start hiring more workers.  Moreover, the majority of economists believe a huge amount of monetary and fiscal stimulus currently is being applied to the economy.  With a resolution of the Middle Eastern situation, the aforementioned stimulus should be able to propel the economy forward and should result in significant gains in employment and income.

Specifically, this school of thought believes that the combination of low interest rates; the decline of the U.S. dollar in relation to other major currencies; a larger than expected proposed federal fiscal stimulus package; a declining backlog of unfilled investment orders; a recent increase in a purchasing managers index; a strong housing market; and a very low inflation rate suggests that the economy is poised for a healthy rebound in the latter part of 2003.

However, not all economists are so optimistic about our economic prospects in 2003.  A minority of economists holds the opinion that the problems confronting the economy are deep rooted and are not likely to be resolved in the near term.  This viewpoint maintains that the underlying problem confronting the U.S. economy stems from the financial excesses of the 1990s.  The financial bubble in our nation's equity markets helped to fuel a massive amount of business investment.  Financial capital was very easy to raise for most corporations.  The thought of huge potential profits from the information technology revolution induced investors to throw vast sums of money into a wide array of business endeavors.  The problem, of course, was that a great deal of overcapacity was created.  In other words, the forecasted demand and profitability never materialized for many businesses.  When it finally became apparent to investors that profits would not meet expectations, the financial bubble burst.  Simply stated, a great deal of investor wealth evaporated with the collapsing equity values.  A sharp decline in wealth would in and of itself have a depressing impact on economic activity.  However, this group suggests that the most important aspect emerging out of the collapse is the amount of lingering overcapacity that plagues a large number of industries.  Until the excess capacity issue is resolved, many industries will not find it profitable or necessary to invest in additional factory, plant, equipment, and inventories.  With no need to expand operations they will be very reluctant to hire additional personnel. 

1.71%