Wednesday, June 18, 2003
Predictions of a boost in 2002 and 2001 proved to be wrong.
WASHINGTON (AP) -- For the past three years, the U.S. economy has taken hits from the bursting stock-market bubble, a recession and terrorist attacks. Conditions now, finally, offer the prospect of better growth over the last six months of the year.
Of course, forecasters acknowledge, they made similar predictions in 2002 and 2001, and were proved wrong.
They now insist that new tax cuts, a weakened dollar, falling interest rates and other positive forces seem to give their latest optimistic forecast a better chance of becoming a reality.
"We have been waiting and waiting for the economy to rebound, and then something happens and things fall apart. But this time, we have a lot more stars coming into alignment," said Diane Swonk, chief economist at Bank One in Chicago.
Manufacturing
For one, manufacturing companies that have shed more than 2 million jobs over the past three years are starting to see omens of better days. That is partly because of the weaker dollar, which makes their products more competitive in foreign markets.
"We are seeing a very nice improvement in orders," said Tony Raimondo, president of Behlen Manufacturing Co. of Columbus, Neb. Demand for the company's steel buildings and other metal products has risen 20 percent in recent months.
Jerry Jasinowski, president of the National Association of Manufacturers, says other companies are reporting similar increases.
The trend raises hopes that the decline in manufacturing employment may end soon as businesses that have slashed inventories start to step up production to meet demands of new orders.
Tax cuts
Help on the demand side is coming from the $330 billion tax cut just passed by Congress. Consumers will begin seeing their shares in paychecks starting next month.
David Wyss, chief economist at Standard & amp; Poor's in New York, said he thought the tax cuts should add as much as 1.5 percentage points to growth over the next year.
As measured by the gross domestic product, the overall economy has averaged growth of less than 2 percent over the past nine months. Wyss is predicting growth will jump to a 3.5 percent rate in the July-September quarter and 5 percent in the final three months of this year.
"The government is doing its part to get the economy going again," Wyss said. "We are running big deficits, reflecting higher spending for defense and the tax cuts."
He said growth should average between 4 percent and 4.5 percent for all of 2004. That pace would begin to make a dent in the unemployment rate, which was at a nine-year high of 6.1 percent in May.
Improved growth cannot come too soon for incumbent politicians such as President Bush who face re-election in 2004.
Many analysts think the jobless rate will peak at around 6.4 percent this summer before gradually improving as the economy grows.
"To reassure his re-election, Bush needs to see the unemployment rate closer to 5 percent than 6 percent," Swonk said.
Hesitant recovery
Most analysts think the country's first recession in a decade, which began in March 2001, probably ended in December 2001. The rebound has been jagged, however, with one quarter of strong growth followed by a weaker one as the economy has had to deal with different kinds of jolts.
A year ago, analysts thought the economy was poised for a sustained takeoff. Then the stock market began to tumble again because of worries about corporate accounting scandals. Also, rising oil prices spurred by war worries before the Iraq invasion sent consumer and business confidence into tailspins.
Many of those negative factors seem to be fading, helped by the tax cuts to bolster consumer confidence and a weaker dollar that has lifted manufacturers' fortunes.