EconSouth (First Quarter 2001)


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Expect Continued but More Moderate Growth in 2001

The year 2000 proved to be very interesting, though not necessarily for the reasons most of us might have expected at the end of 1999. While the Y2K transition was not the communications and financial meltdown that many had predicted, the 2000 presidential election proved to be the most remarkable in more than a century.

The year ahead
From an economic standpoint, 2000 was also eventful. Overall the U.S. economy grew at over 5 percent for the year, after growing more than 4 percent in 1997, 1998 and 1999. But recapping the overall growth rate doesn’t provide a complete view of what transpired during 2000. While the U.S. economy experienced a very strong first half, it moderated substantially by year’s end.

I believe the moderation in growth we are experiencing is a temporary period of adjustment toward a more sustainable long-term growth path.

For 2001, I think the economy’s most likely path is one in which inventories and spending will continue to adjust in the near term but with a return to a more moderate rate of growth over the course of the year, aided by the Federal Reserve’s easing of monetary policy. I think it’s likely that unemployment will tick up slightly but remain quite low, and I expect inflation to remain relatively stable with relief in some of the pressures that had been building.

Jack Guynn

Supply and demand
On the demand side of economy, one key will continue to be consumer spending. During 2000, consumers spent at a faster rate than their income was growing although consumer spending did abate somewhat at the end of the year.

In 2001, consumer spending, like the economy as a whole, will continue to moderate, but there is some good news: Unemployment remains relatively low, and wage growth remains healthy. These characteristics serve as a sort of psychological and financial foundation for consumer spending, and as long as they’re in good shape, consumer spending can continue to increase.

On the supply side of the economy, I don’t believe that productivity is likely to grow at the very high rates witnessed over the previous five years, but I do believe that the U.S. economy is capable of growing above the levels experienced during the 1970s and 1980s. Because businesses understand the importance of providing their employees with the technology needed to remain competitive in the marketplace, I believe that businesses should still be willing and able to make the capital investments they need to increase productivity in 2001.

Slower growth not the same as no growth
In recent years, I’ve warned of something I called the “institutionalization of unrealistic expectations.” I’ve expressed concern that after so many years of unprecedented economic performance, economic growth that’s not exceptional, that’s not spectacular — that’s merely good — would be seen as not good enough.

For those who might slip into this mindset, let me offer this reminder: slower gross domestic product growth is not the same thing as no growth. Businesses, consumers, investors and even policymakers should not allow inflated expectations to distort their thinking during 2001, which I believe will be a year in which the U.S. economy continues its record expansion.

By Jack Guynn, president and chief executive officer of the
Federal Reserve Bank of Atlanta

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