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Stronger than we think

Stronger than we think

Stuttgart, FRG--The troubles that descended on the financial markets of Southeast Asia and Latin America in the fourth quarter caused some U.S. economists to downgrade their 1998 growth projections for North America's surging manufacturing sector. But if you want some reassurance on the underlying strength of the U.S. economy, just ask someone outside this country.

On a recent trip to Germany, I found that both business leaders and government officials were quick to sing the praises of the U.S. as the land of opportunity. "More German companies need to start competing in the U.S.," said Gunter Konigsdorf, who represents the economic development arm of the German state of Baden-Wurttemberg, a region that is home to Mercedes-Benz, Porsche and many other auto-related firms. "The U.S. is the best playing field for international competition."

During the same week, German President Roman Herzog told a high-level meeting of business executives that German firms need to follow the U.S. lead in taking risks on new technologies that fuel growth. He noted that Europe was "clearly better at worrying about our stability and our possessions than at unleashing economic dynamism."

The economic performance of the U.S. throughout the '90s truly has been amazing. In April, this country will begin its eighth consecutive year of business expansion. The unemployment rate is at its lowest point in 25 years, and inflation is negligible. Since the recovery started in the spring of 1991, more than 15 million jobs have been created--virtually all in the private sector. Moreover, the original equipment market has served as the economic pacesetter, with its output rising by nearly 8 percent in 1997--compared to about a 5 percent growth for manufacturing in general. This past October, manufacturers added 54,000 jobs--the largest gain in more than seven years.

Few people are foolish enough to believe that we've put an end to business cycles, but more economists now talk about a new paradigm that will discourage deep business slides. Peter Schwechheimer, of the Boston-based economics firm of Charles River Associates, cites these key factors--

The end of the cold war and the release of resources from the public to private sector.

  • Fiscal restraint within the U.S. government in contrast to past's deficit financing.

  • Leaner businesses as a result of downsizing, re-engineering, and a sharp focus on technological innovation. Practices such as just-in-time manufacturing have drastically reduced the inventory buildups that once resulted in manufacturing slowdowns and layoffs.

  • A shift to market-driven economies around the world, which has opened up new business opportunities in every region.

  • Technological revolution in the U.S.--especially the widespread investments in factory automation--that has cut costs and boosted productivity.

  • A persistent inflation-fighting policy by the Federal Reserve, versus past policies of government "pump-priming" to fight unemployment.

Says Schwechheimer: "Federal Reserve Chairman Greenspan has wisely chosen to raise interest rates before inflation takes hold, rather than waiting till it surfaces and it is too late to do much about it."

All these factors will continue to shore up the U.S. economy in 1998, economists say. A recent survey of manufacturers by Cahners Economics found that 93% planned to spend as least as much on new machinery as they did in 1997. Such statistics are what makes the U.S. economy the envy of the world, despite the temporary jolts from financial markets and the inevitable setbacks of emerging countries.

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