11/17/97 TABLE: The Case against the New Economy

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.

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