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Business Should Ignore The Economic Cassandras


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BUSINESS SHOULD IGNORE THE ECONOMIC CASSANDRAS

Each week, it seems, the U.S. faces another so-called economic "crisis." First it was inflation that was said to be threatening to run amok. Then rising interest rates were going to stall growth. Most recently the big scare was the falling dollar, a supposed sign of the U.S. economy's weakness.

This crisis mentality emanates from the financial markets, which have been buffeted by rising interest rates, losses on derivatives, and falling profits. It would be a shame if a dyspeptic Wall Street convinced the rest of America that there is something fundamentally wrong with the economy.

In spite of all the doom-saying, the expansion, now 40 months old, keeps chugging right along. Inflation is still subdued, and companies are adding more jobs. The federal budget deficit for 1994 is now projected to be only $190 billion, far below the earlier estimate of $235 billion. Corporations are reporting profits in the second quarter that were up 22% over the same period last year. And net investment in new equipment has finally hit 3% of gross domestic product, a level that can support long-term productivity growth. Even if growth fails to keep pace in the second half of 1994, the slowdown will lay the foundation for a sustained rebound in 1995.

But this optimism could be derailed if Wall Street's gloomy prophets beat down the animal spirits of U.S. businesses. It is vital for U.S. companies to break their old habit of slashing spending on much-needed equipment and new capacity when sales temporarily slow. If Corporate America should have learned anything from the 1980s, it's the necessity of continued investment, even if growth pauses. That's the only way to ensure that the U.S. will keep its place in the global economic sweepstakes.


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