Are we headed for the best of times or worst of times? Depends whom you ask.
The economy, as measured by the gross domestic product, will grow 3.6 percent this year, President Bush’s Council of Economic Advisers declared last week. That’s up from the 3.4 percent expansion rate the administration predicted six months ago and the 3.2 percent by which the economy grew last year.
Additionally, the national unemployment rate is down to a comfy 4.7 percent.
People should be happy, but they are not. That’s because economic growth does not benefit everyone equally. In a recent New York Times/CBS News poll, 66 percent disapproved of Bush’s handling of the economy. Last month, consumer confidence took one of its sharpest dips since the 1979-82 downturns.
Sure, corporate profits may be strong, but many Americans are struggling with rising energy prices, inflation and higher interest rates. Consumer debt loads keep getting heavier. Wage growth has been anemic. Median family income has been dropping. Layoffs still abound, despite the low unemployment rate. The housing market, plagued with rising foreclosures, is losing value. And after several years of recovery, the stock market has been incredibly volatile the past month.
But the view is better from the top.
Chief executive officers of America’s top companies predict 3.4 growth this year, according to a survey released last week by The Business Roundtable, an association of chief executives.
“Our survey shows that CEOs believe the U.S. economy has the strength and stamina to withstand the challenges of high oil prices and rising interest rates,” said Hank McKinnell, chairman of the Business Roundtable and CEO of Pfizer.
Of CEOs surveyed, 82 percent said they expected sales to increase in the next six months, 48 percent said they expected to increase capital spending, and 41 percent said they expected to hire more workers.
Chief financial officers are not quite as bullish. In a survey released this month by Duke University/CFO Magazine Business Outlook, only 24 percent of CFOs said they are more optimistic about the U.S. economy this quarter. That’s down from 42 percent in the last quarter.
And now that he’s the former chairman of the Federal Reserve, Alan Greenspan is offering a different view of rising oil prices. Until last week, Greenspan had speculated that the U.S. economy could continue to absorb $70-a-barrel oil costs without too many setbacks. But now he sees the toll.
“Recent data indicate we may finally be experiencing some impact,” said Greenspan in his first appearance before Congress since leaving the Federal Reserve in January. Why the change? After leaving his job, did he have to start driving his own car to the self-serve pump?
The new Federal Reserve chairman, meanwhile, keeps sounding the inflation alarm. On Monday, Ben Bernanke indicated that the Fed will raise interest rates again at its June 28-29 meeting to keep inflation in check. His words sent the stock market reeling, since many investors had come to expect a break in the Fed’s two-year spate of rate hikes.
Everyone seems to agree that the economy is slowing from the whopping annualized rate of 5.3 percent it achieved in the first three months of this year, the fastest since the third quarter of 2003. Going from such a heady level down to even the 3.6 percent level that the administration forecasts could lurch consumers and investors like passengers in a car braking from 53 mph to 36 mph.
How bad will this be? I asked a bull and a bear. Jeff Thredgold, an economist with Vectra Bank Colorado, predicts the Fed will keep inflation in check, oil and other commodity prices will moderate, and corporate spending will fill any gaps left by declines in consumer spending.
Tucker Hart Adams, a regional economist with U.S. Bank, predicts we’re headed for a recession by next year: “It’s going to get worse before it gets better.”
Adams, known as the “Duchess of Doom” for her bearish forecasts, says economists can make the data dance.
“If you emphasize one set of indicators, the economy looks good,” Adams said. “And if you emphasize another, it looks pretty concerning.”
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-820-1967 or alewis@denverpost.com.
