NC state economist [1998 : January-February]

North Carolina Cooperative Extension Service NORTH CAROLINA STATE UNIVERSITY COLLEGE OF AGRICULTURE & LIFE SCIENCES NC STATE ECONOMIST Agricultural and Resource Economics January/February 1998 1998 ECONOMIC OUTLOOK General Trends - National and North Carolina National Economy M.L. Walden, Professor and Extension Economist Economic Fundamentals The continued growth of the national economy in 1997 marks the completion of 7.5 years since the last recession. Through the third quarter of 1 997, real (inflation-adjusted) Gross Domestic Product in¬ creased at an annual rate of 3% (Table l). Due to continued economic growth, the unemployment rate fell. Throughout most of 1997, the national unem¬ ployment rate hovered near 5%. Low inflation has been one of the “good news” items in today’s economy. Inflation at the retail level, measured by the Consumer Price Index, increased only 2.1% on an annual basis through August of 1997. This was lower than the 3% rate in 1996. Interest rates have also been “well-behaved.” In 1997, the benchmark 90-day Treasury bill rate averaged near 5% and the 30-year Treasury bond rate ranged between 6 and 7% for most of the year. Other economic factors also looked good for the past year. Business inventories relative to sales averaged 1.4, the same as in 1996. This is a low ratio, indicating that businesses are not carrying large product inventories. This important factor indicates that if there is an economic downturn, there will not be a shaip reduction in orders to manufac¬ tures. Consequently, any recession would be very mild. The federal deficit fell dramatically in 1997 to $46 billion, because of federal revenues rising more than twice as fast as federal spending in both 1996 and 1997. The Federal Reserve’s monetary policy remained moderate. The “М2” measure of the money supply rose nearly 5% in both 1996 and 1997. The country’s trade balance deteriorated somewhat in 1997. In both years, the country imported more goods and services than it exported. This resulted in negative “net exports” or, in other words, a trade deficit. The trade deficit as a percent of national income (Gross Domestic Product) was 1.7% in 1996 and 1.9% in 1997. Potential Trouble Spots The two biggest potential problems for the economy are consumer debt loads and a rekindling of inflation. Consumer install¬ ment debt as a percent of income is near an historic high. The good news is that most of the debt is owed by middle- and high-income households, who have the ability to make the payments. However, the bad news is that any “shock” to the economy, like a stock Continued on Page 2 Employment and program opportunities are offered to all people regardless of race, color, national origin, sex, age or disability'. North Carolina State University, North Carolina Л&Т State University, U.S. Department of Agriculture, and local governments cooperating.