Lawrence, you asked:
What makes you think the US economy will slow?
I'm figuring 3, 3.5% real GDP growth, …
This is very close to what I am predicting for real growth in the U.S. economy for 1999. By saying I thought the economy would slow, I certainly didn't mean slip into recession. I do think, however, that the 4% growth of 1998 will not be exceeded. When I look at the various components of GDP, the one area that I think is due for a slowdown is nonresidential fixed investment (that's plant and equipment for those that don't read the national income accounts regularly). In nominal terms spending here has grown over 8% the last 6 years and over 9% the last 5. Given the slowdown in profit growth in 98 and the putative capacity problems, I am forecasting a drop in the growth in plant and equipment spending. A drop in growth not an actual decline.
It is also very possible that the price declines we have seen in oil and food will reverse modestly, making the consumer spend more on these areas and less on others. This might lead to a small decline in the growth of consumer spending for 1999.
I can't begin to predict what will happen to inventories. My suspicion is they will neither add nor subtract to growth. As for net-exports, my guess is that as the year goes on they will add to growth (or subtract less) as parts of the world begin to pull out of recession.
-Robert
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