It is time to junk much conventional wisdom about the US economy. Until recently,most analysts assumed the recovery from recession would remain abnormally weak. And looking further ahead they assume that the US would continue to decline economically relative to other industrial countries,principally Japan and a more unified European Community.
Both assumptions are now looking shaky. A clutch of much stronger than expected data suggests the US recovery is finally beginning to take off. Output per hour increased 2.7 percent last year-the fastest productivity growth in 20 years.
With productivity increases translating into impressive gains in corporate profits,US share prices are hitting record high and the dollar is beginning to climb relative to other leading currencies. For internationally mobile capital,the attractions of the US economy are enhanced by worse than expected performance just about everywhere else. Growth throughout Europe is being held back by the strains imposed by German unification and currency instability,Japan,meanwhile,is struggling with its worst financial crisis in decades.
President Mr. Bill Clinton is not only inheriting a lean,productive economy, he is inheriting the most encouraging inflation outlook for a generation. Consumer prices are expected to rise by only about 2.5% to 3% this year and next.
Mr. Clinton,however,in his State of Union address on February 17,is expected to announce an economic stimulus worth about US $30 billion,or 0.5 percent of GDP. He will also announce longer term plans to tackle the familiar budget deficit,now running at about $300 billion but expected nearly to double within a decade because of runaway growth of spending on health care an other “entitlement” progarms.
The US economy recovery becomes more attractive for internationally mobile capital because the US recovery is abnormally strong. ( )