U.S. Economy to Keep Rolling, Analysts Predict

How long can the good economic times last?

At least through this year, most experts say. And you’ve got to give them credit for venturing a guess. After all, they’ve been mistaken for several years running.

The nation’s economy has repeatedly amazed and baffled prognosticators, especially since the beginning of the Asian economic crisis in mid-1997. That contagion was widely expected to infect the world’s biggest economy and bring its long expansion to a halt.

But although the Asian crisis has indeed enveloped much of the world, it has almost mysteriously spared the United States, which on balance appears to have benefited from it.

“This is a remarkable time in our economic history,” said Stan Shipley, an economist at Merrill Lynch & Co. in New York. “This economy is strong enough to overcome adversity. When you occasionally get a shock from Asia or Russia, it doesn’t really hamper this economy.”

The latest evidence came this week in a series of remarkably bullish reports showing greater-than-expected strength throughout most of the economy--even as Brazil, a critical export market, was collapsing into recession and devaluation.

Today, even though analysts see growth easing a bit from its sizzling pace of 1998, they say the U.S. economy remains exceptionally healthy.

“Everything is going right for us,” said Cynthia Latta, an economist at the consulting firm Standard & Poor’s DRI in Lexington, Mass.

The remarkable fact about the economy--already enjoying the longest peacetime expansion in the nation’s history--is that hardly anyone can foresee an end to the party, barring a sudden financial shock.

Americans continue to be treated to the best mix of low inflation and low joblessness that they’ve seen in more than 30 years. What’s more, consumer spending still is brisk and interest rates--despite moving higher in recent days--remain low. That bodes well for additional consumer spending on houses, cars, apparel and other goods and services.

“The fundamental factors are there for the economy to continue growing at a healthy pace,” said Mickey Levy, chief economist at Bank of America in New York.

But as the past two years have illustrated, economic forecasting remains a murky proposition at best, and all sorts of unforeseen events could stunt the economy’s expansion.

With the economy growing so fast, one of biggest worries is a raising of interest rates by the Federal Reserve. The Fed might do that if it believes the economy is overheating and thus threatens to push inflation higher.

For the time being, though, the Fed appears willing to stay on the sidelines in the hope that the U.S. economy will slow on its own and that fragile foreign economies won’t lead to additional overseas crises, analysts said.

“There’s no clear evidence of inflation, so that creates a bit of an obstacle” to a rate hike, said Edward McKelvey, senior economist at the investment firm Goldman, Sachs & Co. in New York. “As long as that’s the case, [the Fed] will watch the economy nervously and hope that the economy slows down.”

An unexpected international crisis--for instance, the outbreak of a regional war overseas or a severe economic slowdown in Europe--also could throw the U.S. economy off track.

Ironically, another potential threat to the U.S. economy is the prospect of a recovery among foreign economies, Latta said.

One salutary result of the global economic crisis has been a worldwide slump in the prices of commodities, from oil to copper. Another result has been devaluation of foreign currencies, which makes their exports to the United States ever cheaper.

The upshot: hardly any inflation for Americans despite their seemingly inexhaustible appetite for goods, from automobiles to sneakers.

Now, amid signs that hard-hit Asian markets and other slumping economies may strengthen, “demand for commodities and goods will pick up again, and the U.S. consumer won’t be the only one out there buying,” Latta said.

That, in turn, would push up inflation. In addition, investment funds--still flowing into the safe haven that is the U.S. economy--will be diverted to the recovering markets, a development that probably will push up interest rates in this country.

Yet in the nearly sublime environment that the U.S. economy seems to inhabit these days, a recovery in Asia will also be a tonic for U.S. manufacturers--heretofore the economy’s only weak link. And sure enough, a report this week disclosed strengthening in the manufacturing sector, thanks to improved exports to Asia.

Such serendipity helps explain why Latta and McKelvey predict that the U.S. economy will grow at a rate of about 3.5% this year. That’s down only modestly from 1998’s pace of 3.9%, and reflects recent, upward revisions in their forecasts, which originally called for growth in the 2.5% to 3% range.

Contributing to the slowdown in growth is a U.S. unemployment rate that stands at a 28-year low of 4.3%, which means many companies will be hampered by a shortage of good job candidates for openings on their payrolls, analysts said.

In addition, the stock market--whose historic boom has padded the pockets of many ordinary Americans and enabled them to keep spending--is not expected this year to post the same gains that it has enjoyed in the last few years.

So far this year, the benchmark Standard & Poor’s 500 stock index is up only 0.74% after surging 27% in 1998.

“If the stock market’s returns come back down to their normal levels of high-single-digit gains,” McKelvey said, “consumers will have a little more reason to keep their spending within their income constraints, and that will slow things down.”

* SOFTLY BUT STERNLY: Deputy Treasury Secretary Lawrence H. Summers tones down message to Japan. C1