Boom cools but the living is still easy
July 11, 2000
by Irwin Stelzer
SUNDAY TIMES (LONDON) July 2, 2000
This is the long leisurely weekend in which Americans take to their barbecues, head for the beaches or hit the road to celebrate our independence from you lot. Well, the beaches and barbecues may be more popular this year. With petrol prices at what we consider high levels – about half of those that Britons pay – 48% of Americans are telling Gallup's pollsters they have modified their holiday plans to include less driving. Only a few months ago most Americans thought higher petrol prices were a temporary blip; now most are convinced higher prices are here to stay.
The same cannot be said of shares, which have not shown the buoyancy of petrol prices. Internet millionaires are no longer being manufactured by the minute and old-economy stocks continue to languish. The failure of share prices to continue their ascent to the stratosphere may have upset Americans, but only mildly. After all, the Standard & Poor's 500 index is almost exactly where it was on January 2 and the Nasdaq is off by only a couple of percentage points. There may not be much gain, but neither is there much pain for investors.
The combination of high petrol prices, coming at the peak of the driving season, and stagnant shares may be the reason why Americans are not as chipper as they were early in the year. In January and in February, 80% of Americans told Time/CNN pollsters things were going very or fairly well in the country; now "only" 72% are as satisfied. The "only" belongs in quote marks because the January and February figures were record highs and the 72% figure has been exceeded in only five of the 156 months in which the poll has been taken. At about this time in 1990 and in 1995 only a bit more than 50% of Americans thought things were going well. Karlyn Bowman, Washington's most astute interpreter of poll data, describes the June figure as merely "a bit down from the euphoria of January and February".
Consumer confidence tells the same story. The Conference Board's index slipped six points in June to 138.8; but that was after a record seven-point rise in May. The June figure represents what Lynn Franco, the economist who compiles these data, calls "a little bit of cooling".
By all historic standards, consumers remain confident of the future - as well they might. Although several indicators suggest the economy is slowing a bit, at least enough to persuade the Federal Reserve to forgo an interest-rate rise last week, there can be no doubt President Clinton had it right when he said last week the country's "remarkable expansion ... the longest economic expansion in our history" is rolling on. In May durable-goods sales rose twice as much as economists had expected, industrial production also surprised forecasters by rising 0.4%, and sales of existing homes were up 4.3%.
Most important, jobs remain plentiful. Even those Americans uninterested in statistics know this because they cannot find anyone to repair their plumbing or mow their lawns. They are also feeling a bit richer, as wages continue to rise at a real annual rate of about 4%.
Little wonder, then, that Americans are in a relaxed mood as they grill their steaks and hamburgers. They certainly are not being disturbed by the nattering of politicians competing with one another to spend the nation's mounting budget surplus, challenging each other's intelligence and integrity and looking for scapegoats to blame for higher petrol prices.
Only 13% of those responding to a NBC News/Wall Street Journal poll say they are paying "a great deal" or "quite a bit" of attention to the presidential election campaign. The rest are divided between the 17% paying "just some", or only a little attention (28%), and the largest group, 43%, paying "none". Only 8% of Americans say the campaign is exciting, while 66% find it "boring" - and nowhere near as interesting as the tight races for the pennants (championships) in the baseball leagues - sensible folks, Americans.
It is, of course, possible this happy mood will evaporate. But it would take a major slump in share prices to trigger a mood-altering recession. The consultancy DRI says share prices would have to fall 40% to trigger a downturn. Given the volatility of share prices, that just might happen. But it is highly unlikely unless the rise in oil prices proves to have a more pervasive inflationary effect, forcing the Fed to jack up interest rates. If my colleague David Smith is right, the economy is better equipped to handle the current oil shock than it was in previous periods of price spikes. The Opec oil cartel may have regained some clout with the help of Mexico, a non-member, but it is unlikely to close the taps so tightly as to trigger a recession in the biggest consumer of its product. But accidents do happen and miscalculations can be made.
This is not a matter of concern to Americans. They are more upset that dry conditions in some parts of the country have made it too dangerous for the usual fireworks displays. Bowman best summarises the mood: "This is a quiet time in America," she says. "Americans are enjoying their summer vacations and not thinking of the rest of the world."
Nor are they even giving much thought to who their next president might be. There will be time enough for that after the baseball season ends in the autumn.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.