The Key to America's Growth: INTERNATIONAL SALES.

• Author: Davidson, Lawrence S.

Every two years, the U.S. Department of Labor issues a new 10-year forecast of the economy. The latest one, published in the Monthly Labor Review in November, 1997, forecast major macroeconomic indicators for the years 1996-2006. If these forecasts are correct, we may want to revise the way we think about the world's largest economy, which is becoming much more international and thus affecting business and policy.

U.S. output, as measured by 1992 dollars, is expected to grow more slowly than in the past 10 years--at an annual rate of 2.1%, compared to 2.3% per year from 1986 to 1996. Whether the truth turns out to be 2.1 or 2.3%, the economy is not exactly destined to grow rapidly. To understand better the nature and impacts of economic growth, it is necessary to take a closer look at the components. The U.S. economy is growing slowly, and much of that growth is being propelled by international sales.

First, consider the dollar amounts that Americans spend on various goods and services. That the U.S. is a service-oriented nation is confirmed by the fact that almost 40% of what was produced in 1996 was categorized as consumer services (housing, utilities, transportation, medical, etc.). Ten years before that, two trillion dollars were spent on consumer services. The relative importance of consumer services spending in 1986 can be understood better by comparing expenditures on other components of the gross domestic product (GDP). After consumer spending on services, the next larger amounts were 1.2 trillion dollars for consumer nondurables (mostly food and clothing); $455,000,000,000 for residential and nonresidential structures (essentially building and construction); $448,000,000,000 on durable goods (e.g., cars and appliances); $346,000,000,000 for producers' durable equipment; $273,000,000,000 for Federal government defense expenditures; $244,000,000,000 for exports of goods; and $120, 000,000,000 for exports of services.

At $364,000,000,000, exports of merchandise and services clearly were important in 1986, but that amount was small in comparison to other major spending items. For example, sales of exported merchandise amounted to 12% of consumer spending on services. Foreign sales of merchandise added up to just about half of what was spent on durable goods in 1986.

That will have changed, according to the forecasts of the Department of Labor, by 2006. Between 1986 and 2006, GDP is predicted to grow from 5.5 trillion to 8.5 trillion...