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Despite Global Woes, U.S. Economy Prospers

Commerce: Amid financial uncertainty in much of the world, a seemingly invulnerable America emerges.


WASHINGTON — Like a gigantic, multilingual flea market, the nations of the world are blending inexorably into a single, global economy. At least, that is what we are often told.

Yet the striking contrast between boom times in America and hard times in much of the rest of the world underlines a different, less-discussed reality: In vital ways, the United States remains a nation apart, its prosperity based more on consumers in California than manufacturers in Malaysia, its financial health affected more by decisions in Washington than turbulence overseas.

Even last year's financial disaster in Asia boomeranged into a benefit for most Americans, who already were enjoying a seemingly invulnerable economic upturn. Worried about the far-flung perils, the Federal Reserve cut interest rates three times, and consumers responded with a euphoric binge.

"Can the U.S. economy prosper just on internal, yuppie consumption?" asks Edward E. Yardeni, chief economist and global investment strategist of Deutsche Bank Securities in New York. "The answer--so far--is absolutely."

No one doubts that America's links to the global marketplace are important and growing. Yet mantra-like chants of "globalization" obscure the fact that most people's livelihood still depends on the domestic economy, a colossal, $8.5-trillion web of commerce in which the world's richest consumers lavish much of their money on homes, services and other things that never will be traded overseas.

Exports, meanwhile, an important gauge of this country's links to the global economy, accounted for just 11.3% of U.S. economic activity last year, according to the Commerce Department. That figure has crept up only a few percentage points since the early 1980s and remains only a fraction of the share in Germany, Canada, Mexico and many other countries.

"The domestic economy is the big dog, and exports are the little bitty tail," declares James F. Smith, a longtime forecaster and chief economist at the National Assn. of Realtors.

Now, as fears of a world financial meltdown recede, Smith's observation is a reminder that for the United States at least, good economic forecasts--like virtue--begin at home. Economists have torn up their gloomy forecasts repeatedly, as evidence piled up that foreign woes were having surprisingly little impact on most of this country.

Ross C. DeVol, U.S. economist at the Milken Institute think tank in Santa Monica, puts it this way: "Globalization hasn't gone quite as far as many of us like to espouse--including myself."

Few would take issue with that at USG Corp., a producer of wallboard that is scrambling around the clock to keep up with the fierce demand. Although Asia and other regions have become a growing market for its products, USG still gets about 90% of its sales from inside the United States. This country's boom in home buying and renovating has set off a free-for-all for scarce wallboard, and the Chicago firm is hurrying to complete five new plants.

"We're running our plants now seven days a week, 24 hours a day," says Richard H. Fleming, the company's executive vice president and chief financial officer.

U.S. Stands Out in Global Market

Even when global forces obviously are at play, America's uniqueness stands out.

Just last September, Federal Reserve Chairman Alan Greenspan uttered his now famous caution that the United States could not remain an "oasis of prosperity" in a world plagued by financial turmoil.

The warning seemed timely, coming as overseas financial shocks were threatening a credit crunch in this country. Forecasters warned of a sharp U.S. slowdown in 1999. The stock market looked shaky. Highly publicized corporate layoffs seemed to signal trouble on the horizon. Consumer confidence was starting to slip from its lofty heights.

Moreover, the overseas problems were hammering certain U.S. industries, notably in manufacturing, agriculture and energy production, along with particular regions, such as the Bay Area and Seattle.

But concerns that foreign travails would spread broadly into this country proved unwarranted. In part, Greenspan helped keep the United States an oasis by promoting three interest-rate cuts in the next few months, a development that delighted investors and sparked a surge in housing and other industries.

The Fed's widely welcomed moves were a tacit recognition of America's exceptional role in the global economy. They signaled U.S. vigilance to foreign countries, and bucked up American lenders, investors and consumers who were worried about news from overseas.

'We've Clearly Been the Beneficiaries'

Yet there is another reason why the much-heralded slowdown proved a no-show on U.S. shores, a reason that goes to the heart of America's unique status in the world.

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