From Boom to Ka-boom? The Y2K Economy (2000)
In February, the U.S. economy entered its 107th consecutive month of growth, the longest running economic expansion in U.S. history. Regional economies from coast-to-coast are also performing well. Nevertheless, there is both good news and bad news as we consider the economic outlook for the year 2000.
The good news is that economic analysts are not predicting that the expansion will come to a grinding halt this year. Instead, growth will moderate yet continue at a healthy pace. This may translate into a less-hostile collective bargaining environment where management’s “inability to pay” claims fall on deaf ears. The bad news is that not all populations are sharing in the prosperity. In spite of the booming economy, income inequality — the earning gap between the rich and the poor — continued to grow in most states in the 1990s and is projected to continue down this path in 2000.1 Thus, the need to organize continues to be critically important.
The current economic expansion has been characterized by growing gross domestic product (GDP), low unemployment and interest rates, negligible inflation, and strong income growth linked to the sizzling stock market. A review of 1999 economic data and a look ahead to year 2000 projections help put this in perspective.
- The annualized real GDP growth for 1999 was 4 percent, the third straight year of annual growth at or above that level. Projected GDP figures for 2000 anticipate a modest slowing to 3.7 percent, according to Regional Forecast Associates (RFA), a leading econometric forecasting firm, and 3.3 percent according to the Congressional Budget Office, the government office that provides Congress with non-partisan economic analyses needed for budget decisions.
- The annualized unemployment rate for 1999 was 4.2 percent. The rate then dipped to a 30-year low of 4 percent in January 2000. This figure is not expected to rise over the course of the year. The resulting tight labor market is likely to put upward pressure on wages.
- Interest rates have been at low levels throughout the 1990s, but in an effort to deter inflation, the Federal Reserve raised key short-term interest rates a quarter of a percentage point in February. In response, major banks announced that they would increase their prime lending rates, which means higher interest payments for millions of consumers and businesses. It is anticipated that further rate increases may be necessary to keep inflation in check.
- U.S. stocks have appreciated $11 trillion in value since the expansion started in 1991. This has been a major contributor to the increased net worth of some American households and the surge in consumer spending. Personal income growth increased by 5.8 percent in 1999 and is expected to increase at the same rate in 2000.
According to RFA, this encouraging national data shakes down to the regional and state level as well. For example, the Hawaiian and Northeast economies, two areas that have been lagging behind the pace of the national economy, are both on the mend. The outlook for job growth in 2000 is expected to be the strongest in the Southwest, mostly as a result of increasing demand for high-tech exports. The Southeast will experience mixed results, as the sluggish lower Mississippi Valley offsets stronger results in Georgia, Florida and North Carolina. RFA forecasters predict that the Midwest and the Northeast will both experience moderate growth.
If the economy is in such fantastic shape, how is it that income inequality continues to grow? As reflected in the EPI report, New York state, where the average income of the top 20 percent of families was 14.1 times as large as the average income of the poorest 20 percent of families over the 1996-1998 time period, has the most unequal income distribution in the United States. According to analysts, “the growth in income inequality is primarily due to the growth in wage inequality. Wages at the bottom and middle of the wage scale have only recently grown after having stagnated or declined for nearly two decades.”2 Factors contributing to wage inequality include lower union density and the expansion of low-wage service jobs. While persistent low unemployment rates and small increases in the minimum wage have resulted in modest wage gains at the bottom, this is not enough to offset the two-decade long pattern of stagnant or declining incomes.
Economic analysts predict that a realistic economic outlook for 2000 is that it will be a year of transition. The economy will grow more slowly, unemployment, inflation and interest rates may creep up.
1 Bernstein, Jared et al. Pulling Apart: A State-by-State Analysis of Income Trends, Economic Policy Institute and Center on Budget and Policy Priorities, Washington, D.C. (January 2000).
2 Ibid., page 33.