Depending on where one looks, the nation’s economy is sickly, or placid, or showing signs of vigor.
Technology, thought to be brain dead after the tech wreck of 2000, is bouncing back. Manufacturing ranges from moribund to not so bad, depending on the product. Retailers, meanwhile, are looking forward to the arrival of good times ushered in by Halloween.
The U.S. economy is not a monolith. It is more a collage of sectors and subsectors that rarely rise and fall in concert. At any given time, some niches of the economy are in deep depression while others are booming.
The domestic steel industry, for example, was badly battered in recent years because of imports. As companies such as Bethlehem Steel and LTV Corp. crashed into bankruptcy, steel’s poor health became visible in the unemployment line. Five years ago, 644,000 people labored in the production of primary metals, of which steel is the largest part. This summer, fewer than 477,000 poured hot metal.
But people continue to pour alcohol.
Brewing, winemaking and distilling of alcohol are classified as manufacturing by the federal Bureau of Labor Statistics. Employment there has risen a bit, from 57,000 in 1998 to nearly 60,000 now. And while beer may not be a quickly growing industry, neither has it seen the upheaval endured by other industries.
“Brewers export beer, not jobs,” observed Robert Weinberg, a longtime brewing industry consultant based in St. Louis. Brewing has evaded the wrenching changes wrought by technological breakthroughs, which lead to machines replacing people.
“The brewing industry has been pretty efficient all along,” Weinberg said. “There haven’t been any big changes in technology that have eaten away the jobs.”
And of course, beer remains an attractive beverage for many people. Some even regard it as a balm during times of economic downturn.
Still, beer remains optional; clothing usually is not. Yet the nation’s textile industry has suffered huge losses in recent years as looms have been packed up and shipped to low-wage countries in Asia.
“The sector that really racked up big losses [is] textile, apparel and leather,” said Josh Bivens, an economist with the Economic Policy Institute. “At the beginning of 1998, there were 675,000 jobs” in the sector, he said. “Right now it’s at 304,000.”
Bivens said cheap labor is just one reason for apparel production to move abroad. Another economic factor is at work to drive out textiles.
`A story of foreign trade’
For years the dollar has been high in value in relation to other economies, making foreign clothing–and practically every other import–cheap in comparison with American-made apparel.
“It really is a story of foreign trade,” Bivens said.
But the near future looks brighter for retail sales overall, a huge segment of the economy.
“We are calling for a modest improvement,” said Derek Leckow, a retail analyst with Chicago-based Barrington Research. “With improving economic trends, it’s more likely that we will see improvement in all areas of retailing.”
Leckow thinks bookstore chains will do well, with quite a few established authors bringing novels out this fall. He thinks drugstore chains also will prosper, as shoppers coming in to pick up prescriptions decide they also have money for general merchandise.
While retailing is looking up, much of American agriculture depends on government subsidies. If good times are coming, will they extend prosperity to farmers as well?
“No,” said Ken Goldstein, an economist for the Conference Board. “The answer is no.”
Goldstein said the failure of World Trade Organization talks in Cancun, Mexico, shows the intractable problems facing agriculture. Oversupply of some commodities and the eagerness of developed nations to subsidize their farmers means some crops are sold for less than the cost of production.
“It was never an easy way to make a living, and it’s gotten a lot tougher,” Goldstein said of farm life. “When corn raised in Kansas has difficulty competing with corn shipped in from Argentina, that should be a tip-off that farming is not a way to get rich.”
Home construction was a way to get rich for several years, and housing is likely to continue as an engine of the economy, even if it revs a good deal slower in 2004 than it did this year.
New and used home sales regularly set records over the past couple of years. And when people buy a home, they often buy appliances and furniture, which further benefits the economy. Economists say people’s willingness to invest in a home, even in a time of uncertainty, saved the economy from a much steeper recession.
“We expect housing to see a slowing in home price increases,” said Scott Anderson, a senior analyst with Wells Fargo & Co. “Housing [construction] might remain at decent levels, but the best days in housing are over.”
Anderson also said he expects mortgage interest rates to rise next year, and that almost always slows residential construction.
Cheap car loan backlash
After a home, most people’s biggest purchase is a car. For several years the Big Three automakers kept their assembly lines running by offering low and no-interest loans. Subsidized financing proved popular with consumers, and vehicle sales remained strong even when the economy was weakening.
Therein, however, lies a new problem.
“We think that has exhausted demand,” Anderson said.
From where, then, will recovery come?
Some economists believe spending by business will propel the economy higher.
In 2000, businesses started cutting back on major capital expenditures, whether it was buying machine tools or computers or industrial robots. With demand for their goods and services falling, there was little need for businesses to invest in new capacity.
“Capital spending is going to bounce back,” said Jay Mueller, economist and portfolio manager for Strong Capital Management. “Corporate profits are running about 14 percent up year over year. When you see profitability improve, you see more capital expenditure.”
Manufacturing on wane
That said, Mueller argues that manufacturing–where capital expenditure was especially weak–will never regain its star status in the economy.
“It’s perfectly reasonable to expect that goods, tangible stuff, will continue to shrink as a share of the gross domestic product,” Mueller said. “I think that is a long-term trend that is going to continue for the foreseeable future.”
Unlike most of the economy, there is one component that seems irresistibly buoyant, growing consistently for at least 35 years.
“Health care has been one of the great growth sectors in employment,” said Uwe Reinhardt, a medical economist at Princeton University. In 1998 there were 12.2 million health-care workers in the United States, according to government statistics. Now there are 13.8 million.
The rising cost of health care hurts profits at companies and has become unaffordable for many people. But Reinhardt sees a social good in health care’s relentless expansion.
“Historically health care has been a boon to minorities and women,” he said. “It was a steadily growing and very welcoming haven for minorities and women that allowed them to become skilled, rise in the ranks and do meaningful work.”
