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Points of Economic Light
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19903 |
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Section : |
CURRENT ISSUES
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| Issue
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4 / 1992 |
1,661 Words |
| Author
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Eugene Sarver
Eugene Sarver is professor of finance at the Lubin Graduate
School of Pace University in New York. |
The pervasive "gloom and doom" atmosphere hanging over the American economy obscures significant positive elements that are very much part of the economic reality. The bright spots include the fact that the recession's severity is vastly overstated, that it is offset by compensation developments, that some important sectors are registering solid growth, and finally, that the unemployment caused by corporate restructuring has catalyzed many people to take entrepreneurial leaps that have often proven more satisfying than the career paths from which they were ejected.
Before going any further, it should be noted that the actual recession (i.e. contracting economic activity) ended in May 1991, a mere 11 months from its July 1990 start (an average duration for the nine postwar recessions). While subsequent growth of the economy has been anemic (it grew at annualized rates of 1.4 percent, 1.8 percent, and 0.3 percent in the last 3 quarters of 1991), the sluggishness masked several strong sectors and the relatively moderate unemployment rate of 7 percent compared to nearly 11 percent in the previous recession.
Exports, for example, have done exceptionally well, growing at an average rate of 12.2 percent in the last nine months of 1991. Moreover, exports rose to a record $37.5 billion in November, 0.9 percent above the previous high set in October, with capital goods and foods among the best performers. Sparking the surge were several elements, including strong growth in north and southeast Asia, Europe, and now South America; a highly competitive, cheap dollar (exchangeable in the last quarter 1991 for only DM 1.62 or yen 129); and very importantly, a "lean and mean' manufacturing sector that has achieved major productivity gains, thereby providing better prices. And manufacturers, especially small and medium-sized ones, are increasingly marketing abroad.
Housing trends
Another strong sector is housing. The move toward 8 percent interest for a fixed-rate mortgage has generated definite enthusiasm about home buying. Rate-induced home purchases have climbed to levels traditionally associated with a sharp housing rebound as reflected by the 2.6 percent rise in the December housing starts, combined with a 5.8 percent rise in building permits, among other evidence.
Housing is also being boosted by President Bush's proposal in his State of the Union speech to offer $5,000 in tax credits (expected to be retroactive to February 1) to
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