Abstract:Productivity Information technology, which is 6% of the economy, has produced 35% of economic growth over the last five years. Productivity gains outside information technology have been meager. Produ...Productivity Information technology, which is 6% of the economy, has produced 35% of economic growth over the last five years. Productivity gains outside information technology have been meager. Productivity gains will be crucial in extending economic prosperity into the new millennium. If so, high growth and low inflation will continue. All levels of government will be brimming with budget surpluses. The funding of social security and medicare will become smaller problems. The Federal Reserve will be generally accommodative and financial markets will benefit from low interest rates. Once again, equities will out-perform bonds, boosting America's standard of living to ever rising heights. There is a decent chance of maintaining productivity gains in the new millennium. Resources continue to shift from old style manufacturing to information technology including internet services and software. In the process, the economy is creating more and higher paying jobs in services. Economy The economy is red hot. Consumer spending in the second quarter accounted for over 160% of economic growth instead of the more normal 65%. There is little evidence that higher interest rates have slowed the economy. Car and truck sales have soared and new and used home sales are at lofty levels. Not to be outdone, businesses have been spending money on plant and equipment, including information technology. Inventories are being rebuilt because the real inventory to sales ratio is at the lowest level since 1973. The economic recovery abroad implies that the trade deficit will be less of a drag on the economy in the future. Nevertheless, the economic temperature should cool early next year. The canary in the coal mine is the stock market. While broad market indices have been moving sideways at a high level, other stocks have been correcting for sometime. With additional help from Chairman Greenspan, the broader averages are likely to go lower, braking consumer spending and economic growth. The central bank is in a delicate position. Aggressive tightening would cause bear markets around the world, but any hint of an accommodative monetary policy would lead to a renewed speculative fervor in the marketplace. Eventually, interest rates will rise high enough to slow consumer spending. Y2K is another uncertainty. Most economists agree that Y2K will boost economic growth during the second half of this year and depress economic activities early next year. …Read More
Publication Year: 1999
Publication Date: 1999-11-01
Language: en
Type: article
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