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The Atlanta Fed


Atlanta Fed President Gives Four Reasons Why the Economy Is Doing So Well

For release August 8, 1997

ATLANTA FED PRESIDENT GIVES FOUR REASONS WHY THE ECONOMY IS DOING SO WELL

WEST PALM BEACH, Fla. -- With an economy that continues to exhibit moderate growth and low inflation, while at the same time having become a "virtual job-creation machine," Jack Guynn, president and CEO of the Federal Reserve Bank of Atlanta, said he's not surprised that people have begun to ask him, Why is the economy doing so well, and how long can it last?

Speaking at a meeting of the Business Development Board of Palm Beach County, Inc., Guynn (pronounced "gwin") cited four reasons for the third-longest expansion since the end of World War II: low inflation, productivity gains, international trade and deregulation.

On the topic of low inflation, he said, "Low and stable inflation has given businesses the incentive and the confidence to build new plants and invest in new equipment, and that capital spending, in turn, has helped to create more jobs and more growth."

He pointed out that although gains in productivity are not showing up in the reported data, "the business profitability story tells something different." Businesses are investing in productivity-enhancing equipment, particularly in the service industries. "All things being equal, you would not expect increased investment in industries that are experiencing declining productivity," he said. "Nor would you expect profits to stay up as employees begin to receive higher wages--unless, again, productivity was also increasing."

Guynn went on to cite healthy competition from expanding international trade as another reason for the strong economy. "I see this global competition going hand in hand with U.S. businesses' meeting the domestic challenge of imported goods--not through trade barriers but through better products."

Finally, he said that deregulation in industries such as banking, communications and transportation has created massive changes for the better in the economy.

In answer to the question, How long can it last?, he said, "The duration of this economic expansion will depend in large measure on good policy--both fiscal and monetary policy." Saying that low and stable inflation has contributed substantially to gains in productivity, he added, "We need to continue to question and test the conventional wisdom that seems to assume that you can have either low inflation or strong growth, but not both. Recent experience suggests that we can have low inflation, low unemployment and strong real growth, and I think that there is growing evidence that low inflation is a precondition for achieving our other economic goals."

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