Consumer Binge Puts Economy in Stratosphere
The U.S. economy blew past virtually every prediction by growing at a spectacular 4.5% annual rate in the first three months of the year as consumers snapped up goods and services at the fastest pace in more than a decade, the Commerce Department reported Friday.
Americans bought not only domestic goods, thus helping to expand the U.S. economy, but also huge quantities of foreign goods, helping to drive the nation’s trade deficit to record levels. Without trade’s dampening effect, the economy would have expanded at an even more powerful 6.9% pace.
The new figures for the gross domestic product, the nation’s total output of goods and services, extended a streak of strong growth that has continued virtually uninterrupted since early 1991. The economic expansion since then is now less than a year from becoming the longest in history.
Analysts called Friday’s report the latest evidence that the country is enjoying the most felicitous mix of high growth, low unemployment and nearly moribund inflation since the 1960s.
“We have got an awesome economy,” said Bruce Steinberg, the chief economist of Merrill Lynch & Co. in New York. “We look like we’re going to roll right into the new millennium growing strong.”
“You can reasonably argue that this is the best economy we’ve ever experienced,” said Mark M. Zandi, chief economist of RFA Dismal Sciences Inc. in West Chester, Pa. “This is it, so enjoy it.”
The U.S. economy’s strength was underscored Friday by further signs of weakness in one of its chief economic rivals. Japan announced its unemployment rate hit a record 4.8% in March, an unheard-of level in a country that long prided itself on its ability to maintain full employment and strong growth.
President Clinton touted the U.S. economy’s continued strength Friday as a counterpoint to the Colorado school shootings and signaled that the Democrats would make much of the long, strong growth in next year’s presidential election campaign. “We are indeed a fortunate people,” he said at a news conference in the White House Rose Garden.
The 4.5% growth rate was a full percentage point stronger than most economists had been expecting for the first three months of 1999, and stronger too than the nation’s remarkable 3.9% growth rate for all of 1998. The economy pumped out almost $85 billion more in goods and services during the three-month quarter than it did during the final three months of last year.
The biggest share of the growth was traceable to American consumers, who boosted their spending on everything from clothes to computers at a 6.7% pace, the largest jump since 1988.
The burst of consumer spending left some unsolved riddles. It came during a period when, according to Friday’s report, after-tax income grew by a scant 1.4%.
And during the same three months, according to a Labor Department report released Thursday, employers’ wage and benefit costs rose only 0.4%.
Analysts said that soaring consumer spending reflected confidence in the economy’s future. The mismatch between spending and income pushed the nation’s personal savings rate from zero--already the lowest on record--into negative terrain.
Americans spent $30.9 billion more than they took in during the quarter, which drove the savings rate down to negative 0.5%, the lowest quarterly rate since the government began keeping quarterly records in 1946 and the lowest rate of any sort since the Depression year of 1933.
“Consumer spending is astronomical,” said Allen Sinai, chief global economist for Primark Decision Economics in Boston. “People think life is beautiful; everything is wonderful.”
Analysts traced part of consumers’ flushness to an increase in federal tax refunds that provided millions of households with an unexpected plug of money at the end of the quarter. Refunds climbed from $89.8 billion in the first four months of last year to $109.4 billion in the same period this year.
In addition, analysts said, millions of Americans refinanced their mortgages over the last year. And in contrast to the last refinancing boom in 1993 and 1994, when most homeowners were simply satisfied to pay lower interest rates, this time around they used their mortgage restructuring to draw down some of the equity in their homes--$56 billion in recent months, according to Bank One Corp., a major refinancer.
“This has been like found money for many people,” said Diane C. Swonk, Bank One’s deputy chief economist in Chicago.
Swonk said Americans are also probably making more money, particularly in the form of stock options and bonuses, than government income and wage statistics indicate.
To some analysts, Friday’s blue-sky report included some clouds. “This growth rate is not sustainable, especially with a fully employed economy,” said Stephen S. Roach, chief economist for brokerage Morgan Stanley Dean Witter in New York. “If it continues, inflation will come back.”
Nevertheless, an inflation measure tied to the GDP and included in Friday’s growth report showed a minuscule 1% annual inflation rate, little changed from the 0.9% rate of the final three months of last year.
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Where the Growth Is
The growth--or decline--of particular components of the U.S. economy in the first three months of 1999, expressed as annual rates:
Total goods and services: 4.5%
Source: U.S. Commerce Department
