Economics Essay, Research Paper

A good reading on the outlook for the U.S. economy can be had by closely

watching indicators such as consumer confidence, unemployment, and corporate

downsizing. The chances of an U.S. recession will rise and fall with these measures. For

the moment, each is holding their own. The national state of mind has reflected the

economy around us. With the economy booming as a whole, so has the individual’s view

of the economy. The individual is taking advantage of the good times, thus fueling the

economy to greater heights. Given the possible split second movements in financial

transactions and information, however, this could change literally overnight.

With the economy in good shape, a few indicators can easily show why. The

housing market is rising considerably as more and more homes are being bought. With

low interest rates more homes are being built, proving that the American people have

money and are willing to spend it. Unemployment is considerably down since President

Clinton took office. After the period of recession in late 1990, unemployment steadily

rose to about 10 million in late 1992. Since then, the rapid decline has brought

unemployment to around 6 million and has been a direct indicator toward the strong

economy (Gibson). While unemployment has declined over the past 6 years, the civilian

labor force has increased considerably since the recession. In 1992, the labor force was

hovering around 127 million, whereas now we are at about 138 million (Gibson). Because

of low unemployment and a large labor force the economy is strong.

Consumer confidence is another major economic indicator. By looking at the

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consumer confidence, a general understanding of the individual’s view can be found. With

much controversy over whether or not the economy will falter this holiday season, the

Consumer Confidence Reports (C.C.R.) give a good representation of how the economy

will fare. While some see the economy faltering in December, the reports aren’t out (it’s

only December 5). Chain store sales remain solid heading into the heart of the holiday

season. November’s sales of $40.5 billion represents an increase of 4.4% from this time

last year. Drug stores and wholesale clubs are posting double-digit gains in sales, with

apparel, building supply, discount, and furniture chain stores also registering solid growth.

Electronic stores have leveled out, after reporting an average growth of 7% the past 3

months (McIntyre). The Conference Board’s annual holiday spending survey, released last

week, projects record spending for Christmas gifts this year. American families will spend

an average of nearly $500 each on holiday gifts, up from last year’s $465. Retail sales are

expected to climb by 6-7%, moving into the $50 billion range (McIntyre). These statistics should deny any views on declining consumer confidence. November’s sales were

certainly helped by the stock market’s strong rally, creation of more wealth, and the

ensuing rebound in consumer confidence. With the Dow near record highs again,

households, who have enjoyed several years of steady wealth and income gains, are

confident enough to continue spending. Although the pace of job growth has dropped and

layoff announcements are mounting, labor markets remain extremely tight, with strong

increases in wage and salary income(McIntyre).

Consumer confidence rebounded from a previous 4 month decline with a jump in

November. The November consumer confidence readings show that nearly 16% of Rappaport 3

surveyed families look for business conditions to improve over the next six months,

up from less than 15% in October. Less than 15% expect job opportunities

to worsen compared with more than 18% in October. Consumers also are more

upbeat about their personal fortunes, with nearly 27% looking for their families’ income to

rise over the next six months, against less than 24% in October (Koropeckyj). Although it

increased, it still remains far below the values reached earlier in the year. The

contradictory opinions collide when certain pessimistic views are held by the public, yet

spending is up, as is the C.C.R.. Only 40% of households believe that jobs are plentiful

though they are historically high. Households are wary about the future due to the

increased layoffs and the continued global crisis, which has begun to impact the domestic

economy (Koropeckyj). Although they are weary, low interest rates and low price

inflation are maintaining buying plans, with buying opportunity for houses and automobiles

being high. The decline in confidence may have something to do with the households that

experienced a decline in the market for the first time and were alarmed by it. One of the

keys to the strong economy is the fact that wages are increasing, while inflation isn’t

increasing much. With interest rates low, it has become increasingly hard not to feel

confident borrowing money. The national personal saving rate has decreased dramatically

over the past 6 years to just over .2% (BEA). This proves that consumers are not saving

their money and are fueling the economy through their purchases.

Downsizing is one of the reasons that Americans feel the economy is going to

slump. The low inflation environment is making it difficult for many domestic companies

to raise prices. With inflation at 2% at the consumer level and close to zero at the Rappaport 4

producer level, it’s not surprising that prices aren’t climbing. At the same time, wages are rising and employment costs are up nearly 4%. The result is a developing squeeze on

profits (Investor’s Monthly). Companies are finding that productivity is not increasing as the hours of their workers are increasing. The law of diminishing returns takes place as

overlapping and non-essential jobs are eliminated. These lost jobs, along with jobs lost

due to technological advancements, are forced to look for work elsewhere. More often

than not, these lost jobs are from the manufacturing companies that are the backbone of

our economy. With that, some people are wary of the economies future.

Although we have a strong economy, many are pessimistic of job security and the

rate of downsizing. For many the future is uncertain because it is unknown. The

optimism is present because of low interest rates and low inflation, combined with higher

pay which allows more spending and more borrowing. With this, more cars and homes

are being purchases which is fueling the economy even more. All of this is like dust in the

wind, because turbulence in the stock market, an increase in interest rates, higher inflation,

or lower salaries will cripple the economy. It’s only a matter of time before some of these

indicators shift for the worst, and consumer confidence is lost.

Rappaport 5 BIBLIOGRAPHY

Bureau of Economic Analysis. Personal Saving Rate (Chart). Internet.

Gibson, Sharon. “Labor Statistics” Bureau of Labor Statistics. 4 December 1998. Internet.

Koropeckyj, Sophia. “Consumer Confidence”. Dismal Scientist. 24 November 1998, Dismal Scientist Online. Internet.

Market Outlook: “Market’s Downside Risk Has Been Reduced”. Investor’s Monthly November 1998: 8.

McIntyre, Kevin. “Chain Store Sales”. Dismal Scientist 3 December 1998, Dismal Scientist Online. Internet.