Where we were; where we are going.

• Author: Kurish, J.B.
• Position: US economic conditions - Fiscal and Economic Indicators

On a macroeconomic level the domestic economy enjoyed a relatively good year in 1993. During the fourth quarter, real gross domestic product (GDP) grew at a rate of 7.5 percent, the highest quarterly rate in nearly 10 years; for the full year, real GDP growth was 3.0 percent. The unemployment rate for 1993 was 6.9 percent, down from 7.4 percent in 1992. It also is significant to point out that inflation was held in check during this period of positive economic growth. The Consumer Price Index (CPI) rose only 2.7 percent.

Municipal Financial Health in 1993

State and local governments also experienced improving financial conditions in 1993. For the first time since 1986, Standard & Poor's reported more municipal credit upgrades than downgrades. In 1993, credit ratings on 248 issues totaling $25 billion were raised, and 239 issues totaling $10.3 billion had credit ratings lowered. In 1992, 410 ratings were increased, while 489 were decreased; and in 1991, there were 607 downgrades and only 145 upgrades.

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Another example of improving financial conditions was reported in the National Conference of State Legislatures' State Fiscal Outlook for 1994. Forty-five states reported general revenue collections on or above target for fiscal year 1994. In the previous year's report, only 40 states reported that revenues were on target.

A low interest rate environment in 1993 had a beneficial effect on state and local governments as they refinanced high interest rate debt obligations and undertook new capital projects. The Bond Buyer's 20-Bond G.O. [general obligation! Index fell from an average of 6.5 percent in 1992 to 5.6 percent in 1993, its lowest level since 1973. These low interest rates were responsible for a record volume of municipal debt issuance in 1993: $290.9 billion of long-term bonds and $46.2 billion of short-term notes. As was the case in 1992, the increased volume was due to refunding issues. In 1993, refundings accounted for 66 percent of long-term debt issuance, up from 50 percent in 1992. For the second consecutive year, municipal debt issuance reached new highs, while straight new-money volume decreased. (See Exhibit 1.)

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Looking Ahead

Most economists expect the economy to continue growing at a real rate of 3 to 4 percent. There is increasing concern, however, that inflationary pressures may adversely affect the economy by pushing up interest rate levels. Earlier this year...