The national economy appears to have gathered a head of steam as we move into the early part of 1994. During fourth quarter 1993 real GDP shot up by 5.9 percent. Strong performance by the manufacturing sector, especially the auto industry, has greatly helped matters. Construction activity and sales of existing homes have also added momentum to the recovery. Low interest rates and the belief by many people that rates have bottomed out have spurred on interest rate sensitive sectors like housing and automobiles.
 

     Further, it appears that inflation, while not dead, is certainly manageable at 2.7 percent. And even this number may overstate the real rate of inflation confronted by most consumers. Simply stated, the basket of goods and services that supposedly represents what a typical consumer would purchase is over ten years old. Clearly consumers have had ample opportunity over this length of time to shift their purchases away from goods and services experiencing rapid price growth and to substitute items which have had smaller percentage price increases. Alto, many new products and technologies that exist now didn't at the time of the survey of consumer spending patterns. A prime example of a technical change has been the rapid growth of very large, low price mass merchandisers. This phenomenon is not well represented by the old survey.

     If inflation continues on its moderate growth path, the country's central bank, the Federal Reserve, should have some latitude with regard to tightening credit conditions. However, Federal Reserve Chairman Alan Greenspan has indicated in testimony, before Congress that the central bank is now leaning toward a slight raising of short term interest rates in an attempt to prevent the economy from over‑heating.

     A tightening of credit conditions would surely cause the economy to lose some of its current momentum. Meanwhile, inflation has not been the major problem confronting Europe. There concern has been with recession which has lasted for approximately two years. However, it appears a tentative recovery is underway in this major buyer of U.S. goods and services. A recovery in Europe would increase the demand for U.S. products and help stimulate domestic employment. But, a word of caution, it may take at least another year before Europe will be growing at a respectable rate. Even then, high unemployment rates will persist because of structural rigidities in their labor markets.

     Wisconsin's economy has outpaced the country in terms of job generation over the past few years. In Wisconsin total employment is up by about 4.3 percent since April 1991. For the U.S. the rate is a much more modest 2.0 percent. In the Midwest, only Minnesota has experienced a more rapid pace of job generation, 5.0 percent. For Illinois, Indiana, Iowa, Michigan, and Ohio, total job growth since the end of the recession has been ‑0.2, 2.4, 1.9, 1.7, and 1.0, respective. As a matter of record, if we look only at manufacturing employment, only Wisconsin and Indiana show a net gain during this period. All other Midwestern states and the U.S. actually registered declines in their manufacturing payrolls. Thus, Wisconsin, by these and other measures, has experienced a much stronger expansion than has occurred in many other sections of the country. If the national economy continues to build momentum, this should further help Wisconsin's economy move forward, but, at the same time, the gap between the U.S. and Wisconsin's economic performance should narrow as the pace of activity accelerates elsewhere in the country.

     Why has Wisconsin and its central region done so well relative to other parts of the country? Some of the major reasons are as follows. With a well diversified economy the area is not highly dependent on a particular industry, such as defense or construction. Low interest rates, cost cutting measures, and a low exchange value for the dollar have helped area and state industries to become very cost competitive in the world market. Also, we have not experienced a speculatively driven increase in capacity, which would inevitably lead to a bust, in any of our industries. For example, our area never experienced a budding frenzy like the one in the Southwest, or a rapid escalation in real estate prices like the Northeast. These and other reasons help explain the recent economic successes of the state and region.