The Case against the New Economy
Skeptics believe the economy's good performance can be explained by temporary factors. They say:
-- A sharp slowdown in health-care inflation to less than 3% has helped restrain overall inflation and boost corporate earnings. But medical costs are likely to start rising again.
-- Worker anxiety has held down wage growth to barely 3% annually, keeping up profits without raising prices. But tight labor markets will soon ignite wage inflation.
-- The soaring dollar has made imports much cheaper since 1995, dampening inflation. But with the dollar stable against major currencies, import prices may stop falling.
-- The drop in interest rates since 1990 has pumped up profits even at inefficient companies. But with rates already low, more such easy gains will be hard to come by.
Updated Nov. 6, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.