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HOW THEY SEE IT \ The economy Indicators forecast nothing but blue skies



Published: Fri, February 4, 2005 @ 12:00 a.m.



By MARK J. PERRY

KNIGHT RIDDER/TRIBUNE

FLINT, Mich. -- Look for the U.S. economy to continue to improve this year. The economic fundamentals are solid, and all indications point to a healthy and improving economy in 2005.

Specifically, we can expect above-average growth in real output, more jobs, a falling unemployment rate, and a continuation of the lowest inflation and interest rates since the 1960s.

The economy's outstanding performance in 2004 -- one of the best years ever -- points to an economy firmly positioned for a continuing and robust expansion.

Steady job gains were posted in each of the last 16 months, the strongest 16-month period of job growth in four years. With 132 million Americans now working, we are just shy of an all-time employment record, and should break the record early this year.

From its peak of 6.3 percent in June 2003, the jobless rate has fallen or remained steady in 16 out of the last 18 months, and it dropped below 5.5 percent in late 2004 for the first time since late 2001. The current unemployment rate of 5.4 percent is well below the average jobless rate of the 1970s, 1980s and 1990s, and well below the 9 percent average unemployment rate in Europe.

Personal income topped $10 trillion in 2004 for the first time, and posted the largest annual gain -- 8.6 percent -- since 1982. Not only are more Americans working now than almost ever before but their incomes are rising as well, and the "jobless recovery" is officially over.

Reflecting the strong job market and rising income, consumer confidence has been on an upward trend for the last two years, and is currently close to a three-year high.

Record sales

Retail sales went over $4 trillion in 2004 for the first time, as consumers hit the shopping malls in record numbers. The 7.6 percent increase in annual retail sales for 2004 was the largest annual percentage gain in five years, and December sales of $350 billion set an all-time record for consumer spending in a single month. Home sales surged in 2004 by 9.4 percent to establish an annual record of 7 million units, and November sales set a monthly record.

Real output expanded at a rate of 4.4 percent in 2004, the highest annual rate of economic expansion in five years. Only twice in the last 20 years has GDP increased faster, which was during the peak of the last expansion in 1997 and 1999, when output rose by 4.5 percent.

In other words, the U.S. economy in 2004 performed a lot like the economy in the late 1990s at the height of the strongest and longest economic expansion in history.

Simply put, the fundamentals of the U.S. economy are that of an economy in full expansion, and there are very few clouds on the horizon that could slow down the strongest economy in the world in 2005.

What exactly can we look for in 2005?

According to the consensus of 56 professional forecasters recently surveyed by the Wall Street Journal, we can expect real GDP to grow by 3.6 percent in 2005 -- above the 3 percent average of the last 25 years.

Improving labor market

Further, experts predict continued improvement in the labor market, and unemployment should be down to 5.1 percent by November.

The economy in 2004 was one of the strongest on record, and provides a very solid foundation for a healthy economy this year. The expected growth in real output and employment in 2005 will make America the fastest-growing economy of any industrialized nation in the world, and our economy will be the envy of the rest of the world. Again ... as usual.

X Mark J. Perry is an economist at the University of Michigan-Flint. Distributed by Knight Ridder/Tribune Information Services.




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