EconSouth (First Quarter 1999)
A New Perspective
e are proud to present this inaugural issue of EconSouth, the Atlanta Fed's regional economics and business magazine. This publication features articles, research summaries, data and policy perspectives on topics pertinent to the Southeast. We are excited about this vehicle for sharing our ideas, and we hope you enjoy reading it as much as we enjoy preparing it.
The year ahead
In April 1999 we will enter the ninth year of U.S. economic expansion — the second-longest since World War II. That we have come this far is a testament to the dynamism and flexibility of our economy and to the fiscal and monetary policies that have served as the foundation for this growth.
Like the past few years, 1999 should feature a solid economy albeit less spectacular than in 1997 and 1998. Gross domestic product (GDP) growth is likely to be somewhat slower on an average annual basis, while inflation as measured by the consumer price index should be slightly higher in 1999. Unemployment should remain low, in a range similar to 1998.
I do have concerns, however. While it appears that the severe economic contraction in many Asian economies will bottom out this year, I do not see a strong recovery there in 1999. The outlook for Latin America, which was already unspectacular, has certainly deteriorated since the recent turmoil in Brazil. These developments have negative implications for the U.S. outlook, but the exact extent to which they will affect growth here is unknown. By and large, the U.S. outlook is relatively resilient to those events, given the United States' limited trade exposure to those trading partners and the overall good balance in the domestic economy over the last five years.
During this time, our economic expectations for each year have consistently been surpassed. Real GDP growth has been stronger than forecast, and unemployment and inflation have also been lower. In the midst of this good performance, I have one concern: the institutionalization of unrealistic expectations, that is, the assumption that our economic performance will continue along a smooth path indefinitely and that each year's economic statistics will exceed the previous year's.
This mind-set worries me because it may create a demand for economic policy to eliminate every bump in the road, and this expectation simply sets up policy for failure. While economic policy is extremely important for creating an environment in which markets work their best, it cannot smooth over every rough spot. In fact, monetary policy is ineffective in addressing many economic challenges — and in some instances it can prove harmful by contributing to a high-inflation environment. Thus, I do not believe that monetary policy is always the best medicine for all of our ills. But as a monetary policymaker, I know that low inflation is a critical component to create and maintain a strong, balanced economy, and I am committed to policies that keep inflation low.
While we should not have unrealistic expectations for our economy, we should expect that the world we live in will continue to change rapidly. In this issue of EconSouth, we focus on some of these changes.
A changing world of business
One of the most recent dramatic technological developments is the widespread use of the Internet. In this issue, we examine how the Internet is changing business, looking at the online efforts of several southeastern companies.
The unusual number of natural disasters in the Southeast recently has reminded us of such disasters' toll not only in human suffering but also through the havoc they wreak on businesses and the economy. In this issue we look at how some businesses are preparing themselves to minimize the effects of such disasters.
Finally, we examine Brazil's recent policy changes and their potential effects on the Latin American region, an area that has become an increasingly important trade partner with the United States.
Let us know what you think
We are pleased to present EconSouth and trust you find it accessible and useful. Your views are important, so please let us know what you like, don't like or would like to see added in upcoming issues.
By Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta