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1996-97: REVIEW AND OUTLOOK

From the Weird to the Wonderful, the Year's Business News Was Full of Surprises

December 29, 1996|From Associated Press

1996 excelled in unexpected, unusual and quietly significant events that should be, but probably won't be, a teaching and learning experience. Throw in the weird; there was some of that, too.

The budget deficit fell from a record $290.4 billion in 1992 to $107.3 billion in 1996, according to government figures. Never mind that it is expected to rise again in 1997: It fell 35% in one year.

If that isn't sufficiently shocking, consider this: The "event" that got more coverage than any other in the business and economic media never even occurred. We speak of inflation. It was a nonevent.

It was ever-present, too--as a spectral threat to the public welfare. Each month it grew restless, and the guardians of the temple speculated that the Federal Reserve Board would raise interest rates to appease its anger.

But, at least as measured by consumer prices, it never arose from wherever ghosts repose. The consumer price index in November ran just a bit over 3% more than a year earlier, but the core was much lower.

The core, which excludes the volatile categories of food and energy, was much lower, a rate that, while not very good, wasn't very bad either. But why worry about it, because the CPI isn't accurate anyway.

Or at least we were told that--and emphatically--by a high-level commission that studied it. It claimed the CPI exaggerates the consumer inflation rate by a significant 1.1% a year.

That means, the public was told, that maybe a trillion dollars could be saved over the next dozen years or so, simply because so many federal pensions and benefits, including Social Security payments, were tied to it.

Despite talk of inflation--and of recession, its associate in spookery--the public just couldn't stop spending, and the level of installment debt, mortgage debt and credit card delinquencies approached record-high levels.

Money poured into mutual funds, and because mutual funds must reinvest mainly in stocks, the stock market rose. When it tripped up, as it did a few times, it just picked itself up and kept on beating the drum.

Tastes changed. For the first time in history, in one fall month the annual sales rate of light trucks surpassed that of automobiles, helping the industry to annual sales of more than 15 million units.

The trade picture also changed. Americans had become used to hearing about the deficit with Japan. But for one month, at least, China edged Japan in that category and, just as ominously, seemed even less eager to correct it.

An intriguing and puzzling phenomenon was the enthusiastic acceptance of the economy's rate of growth, which DRT/McGraw-Hill economists referred to as "the tortoise economy." But tortoises are slow. Yes, and growth was, too.

Economists Gary and Aldona Robbins, formerly with the Treasury, examined growth during the first 22 quarters of three relatively well-known expansion periods, in the 1960s, '80s and in the current decade.

The results: Growth in the first 22 quarters of the 1960s expansion totaled 25.3%. In the same number of quarters in the 1980s, the economy expanded 36.7%. And in the 1990s? Just 14.6%.

No matter, the popular surveys found consumers content with conditions and confident about the future. Even exuberant, if you can rely on the word of merchants regarding the level of Christmas sales.

Viewing this, several critics have referred to the "dumbing down" of aspirations, meaning Americans may be more content than before with meager offerings. But there may be more to it than that.

Perhaps the accuracy of those statistical measurements is even worse than we thought.

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