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U.S. ECONOMY MOVING INTO RECOVERY, THE CONFERENCE BOARD REPORTS TODAY CORPORATE PROFITS POISED FOR TAKEOFF
Jan. 23...The U.S. economy is moving toward economic recovery, with real Gross Domestic Product rising by a projected 1.3% this year and climbing to 4.2% in 2003, The Conference Board reports today in its latest forecast.
A stabilizing job market, strong consumer spending and improving business balance sheets are major forces propelling the recovery. The forecast, by Conference Board Chief Economist Gail Fosler, is being released today to The Conference Board's worldwide business membership, which is based in 67 countries.
"For the time being," says Fosler, "the United States has weathered the crisis of September 11 with relatively minor economic damage in the form of a mild recession which has all the signs of ending very soon."
While growth is expected to be slow in coming months, a major turnaround in profits is ahead. Rising productivity has become a potent growth factor in the U.S. and should lead to increasing profits, which have been under pressure. "This is the first time since the 1970 recession that business productivity has risen in the early stages of a recession," Fosler notes "and today's gains are considerably larger."
RETAILERS MAULING EACH OTHER
If consumers are continuing to spend, why is retail activity remaining sluggish? One reason is the intense and growing competition among thousands of retail outlets, all competing in a large but not fast-growing market.
The other big reason is that general merchandise or chain stores account for only 12% of all consumer spending. About 60% of consumer spending goes for housing, home maintenance, health care, financial services, recreation and education. The other 40% is spent on big-ticket goods, soft goods, food and gasoline. "The number of retail channels has exploded in the past decade," Fosler points out, "with imports accounting for a rising share of this relatively slow-growing market. Only when the U.S. retail sector is growing at unsustainable rates -- as in 1999 and 2000 -- do all parties survive and make money."
THE CASE FOR BUSINESS GROWTH
While the business sector has clearly been the big drag on growth over the last year, signs of an upturn are mounting. Declining financing requirements, partly based on better cash flow, and the rising availability of credit suggest better times ahead.
Business' unprecedented need for credit and accommodating lenders -- both private credit markets and banks -- created a massive credit squeeze last year that knocked down inventories and curtailed business investment. The forces that created this credit contraction appear to be easing.
The Conference Board analysis also notes that businesses in many industries are building their balance sheets. One result: the net acquisition of financial assets now almost equals the increase in financial liabilities.
Fosler suggests that businesses may have to finance their own growth. "As in the early 1990s," she declares, "businesses will once again have to become their own bankers, financing their productivity and competitive improvements from cash flow."
Source: StraightTalk January 2002Updating the U.S. EconomyThe Conference Board
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