The Economy Grabs the High Ground
Defying hurricanes and inflation, rising interest rates and political gridlock, the U.S. economy demonstrated its remarkable strength and stamina last week.
"Our economic horizon is as bright as it's been in a long time," crowed President Bush on Friday at the White House, after a Labor Department report showed the economy had added 215,000 jobs in November, with hourly wages up 3.2 percent over a year ago.
"A solid performance," declared Federal Reserve Chairman Alan Greenspan from London, where he attended his last quarterly gathering of finance ministers and central bankers of the industrialized countries.
The week's economic data included a report estimating the economy grew at an annualized rate of 4.3 percent over the summer, blowing past most predictions and showing continuing strength in consumer spending and business investment. Other reports showed solid increases in retail sales and factory orders and a housing market that, while falling off its blistering pace of the last two years, still has some momentum behind it.
Oil prices, which have fallen nearly 20 percent from their post-Katrina highs, and gasoline prices, which have fallen even more, boosted consumer confidence and helped give a respectable start to the holiday shopping season.
Although the stock market ended the week down slightly, the positive economic trends should be enough to drive the Dow Jones industrial average through the psychologically important 11,000 mark by year's end. The stock market performance is all the more remarkable considering the prospect that Congress may decline to extend lower tax rates on investment income when it returns next week to resume negotiations over a five-year budget plan.
One reason for the economy's surprising strength, according to forecasters at Goldman Sachs, is an upswing in the manufacturing cycle, which they predict will keep the economy humming at least through the middle of 2006. And that's in spite of big problems faced by Ford and General Motors, which reported another big drop in truck and SUV sales last month and are pushing forward, along with their suppliers, with plans to close dozens of plants and lay off tens of thousands of workers.
Most curious of all is the continuing strength of the dollar, which has risen 17 percent against other currencies in the face of a massive trade deficit that, by right, should be pushing it the other way. For that, says John Makin of the American Enterprise Institute, we can thank all those oil producers who apparently have no better place to invest their recent windfall than in gold, which topped $500 an ounce last week, and in dollar-denominated U.S. stocks and bonds.