Another Try at Comfortable Deceleration.

• Author: Davidson, Lawrence S.
• Position: Brief Article

You move into the passing lane, push the accelerator a little harder, make your pass, and then return to a comfortable, sustainable speed. The pass may have been necessary or exciting but it is good to be traveling at the right speed again. With the United States economy growing at more than 4 percent per year for four years, the forecasting community is once again predicting a deceleration of economic growth under the belief that conditions dictate a more sustainable rate of change for Gross Domestic Product (GDP) in the year 2001.

Strong growth above 4 percent has been very important to the U.S. The unemployment rate dipped below 4 percent in more than one month in 2000. With the increased employment have come higher incomes and reductions in crime and poverty. The 10-year national economic expansion has benefited consumers, armed firms with newer and better technology, and facilitated an expansion in spending on Medicare and other social programs. Clearly, gains have been widespread and significant for most groups.

But traveling so fast sets off alarms. This year saw wages and prices start to accelerate. The Federal Reserve (the Fed) raised interest rates to try to cool the economy. Spending on housing and durable goods slowed. The U.S. trade deficit soared to over $400 billion as the dollar strengthened against the new euro. Consumers reached deep into pockets to sustain spending on both imported and domestically produced goods. Equities markets drifted lower and have not recovered as of the end of the year.

As we move into the New Year the expected slowdown scenario is complicated by an energy imbalance. World economic recovery increased the demand for petroleum products. Supply was not forthcoming and prices spiked. The gray hairs remember the 1970s but they are not sure how what we learned will come into play in 2001...