UNC-CH Expert Says U.S., N.C. Economies Extraordinarily Good

August 08, 1997

CHAPEL HILL -- The United States and North Carolina economies are extraordinarily healthy, a University of North Carolina at Chapel Hill financial expert says, and it's hard to imagine a scenario much better than the current one.

"If you were an economics doctor who could write a prescription for a country like a medical doctor does for a patient, you would probably complete one that would look very much the way the U.S. economy does today," said Dr. James F. Smith, professor of finance at UNC-CH. "Most other countries in the world would love to have a job market as vibrant and dynamic as ours."

Besides a low 5 percent unemployment rate, the United States in June had both the highest labor force participation rate -- 67.1 percent -- and employment-to-population ratio -- 63.7 percent -- of all countries belonging to the Organization for Economic Cooperation.

"This is truly an enviable position for any country," Smith said.

Smith discusses the national and state economies in the latest issue of "Business Forecast," a bimonthly newsletter he produces for UNC-CH's Kenan-Flagler Business School.

North Carolina now has the nation's 12th largest economy, and its share of the U.S. economy is 2.7 percent, an increase from 2.2 percent 20 years ago. From 1987 to 1994, the gross state product, which for states is analogous to the gross national product, grew by 3.1 percent a year, well above the national average of 2.3 percent.

"The unemployment rate in North Carolina remains well below the national average," Smith said. "This is despite have the highest labor-force participation rate of any state."

Because of high and growing employment, which led to record incomes and retail sales, the N.C. budget surplus was even healthier than had been predicted last year or earlier this year, he said.

Nationally, some 350,000 people lose their jobs every week, with the precise figure issued every Thursday morning by the Bureau of Labor Statistics of the U.S. Department of Labor and widely reported by the media, Smith said.

"What is almost never covered is the amazing statistic that on average, 400,000 people are finding new jobs every week," he said. "This is how over 11 million net new jobs have been created since President Clinton took office. No wonder he likes to brag about this indisputably good news."

Nearly everyone in the United States knows that jobs are plentiful and easy to land, Smith said. That is why surveys of consumer sentiment are showing such high readings.

"The Index of Consumer Sentiment, which has been compiled by the Survey Research Center of the University of Michigan since 1946, hit a record high in June," Smith said. "The Index of Consumer Attitudes that is produced by the Conference Board is at levels not seen since the late 1960s."

On July 11, the Bureau of Labor Statistics reported that the Producer Price Index (PPI) for finished goods had fallen by 0.1 percent in June. That was the sixth consecutive month of decline, a phenomenon never observed in the 50-year history of the report. So far in 1997, the PPI for finished goods has declined by 3.4 percent.

"One of the factors contributing to this decline has been a 21.5 percent drop in the price of computers," Smith said. "This allows companies to invest even more heavily in computers to increase productivity. These productivity increases allow companies both to increase wages and salaries and to continue to cut costs."

The Consumer Price Index (CPI), a key measure of inflation, is exhibiting the lowest rate of increase seen so far in the current economic expansion, he said.

"The CPI was up only 2.2 percent from last year in May, and the best bet is that it will soon be at 2 percent or even somewhat lower."


Note: Rated the nation's most accurate economic forecaster by the Wall Street Journal in 1995, Smith is a frequently quoted financial expert and teacher known for his clarity, wit and common-sense approach to economics. He can be reached at (919) 962-3176. As time allows, he's willing to discuss most economic issues with reporters.

University of North Carolina at Chapel Hill

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