[Congressional Record Volume 140, Number 12 (Wednesday, February 9, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: February 9, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                E X T E N S I O N   O F   R E M A R K S


                          THE ECONOMIC OUTLOOK

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                      Wednesday, February 9, 1994

  Mr. HAMILTON. Mr. Speaker, I would like to insert my Washington 
Report for Wednesday, November 24, 1993 into the Congressional Record:

                          The Economic Outlook

       As I travel around the Ninth District, I am frequently 
     asked questions about the economy and the economic outlook. 
     Hoosiers are concerned about the budget deficit, our 
     international competitiveness, and especially the outlook for 
     jobs. They are asking about the impact of President Clinton's 
     economic program.


                            economic outlook

       In several respects, the economy has been improving.
       Economic Growth: The economy expanded at a 2.8% rate during 
     July, August, and September, after rising at a rate of only 
     1.3% in the first half of the year. Most analysts expect even 
     stronger growth in the fourth quarter, to a rate of 3.5-4.0%. 
     This would be a major and very welcome improvement in the 
     performance of the U.S. economy.
       Jobs: During recent months job growth has also 
     strengthened. Despite widely-publicized announcements of 
     layoffs by some large companies, U.S. businesses have 
     actually been adding an average of 156,000 workers a month to 
     their payrolls this year, compared to less than 35,000 a 
     month during 1991 and 1992. Many Hoosiers are benefiting from 
     the improved job picture. In September more than 2.8 million 
     Hoosiers held jobs, up 200,000 from the end of 1992, and the 
     unemployment rate in Indiana was 4.7%, two points below the 
     national average of 6.7%.
       U.S. Industry: After years of struggling, U.S. 
     manufacturing industries seem to be making a comeback. 
     Industrial production has risen for the last five months and 
     is now 4.4% higher than a year ago. New orders for durable 
     goods and business investment spending both show significant 
     increases over last year. This growth is starting to mean new 
     jobs. In October, factory payrolls rose 12,000, the first 
     increase since February, while the average factory workweek 
     has risen to record levels.
       Consumer Spending and Homebuilding: A number of 
     indicators--including retail sales and new installment debt--
     suggest that consumer confidence in the economy is starting 
     to improve. Indeed, much of the strong economic growth in the 
     third quarter came from consumer spending, which rose at an 
     annual rate of 4.2%. One of the brightest spots in the 
     economy is housing. New home sales rose more than 20% in 
     September to the highest level in seven years, and housing 
     starts are at their highest level in nearly four years.
       Inflation: During the past six months, prices of most 
     consumer goods and services have risen at an annual rate of 
     less than 2%, the lowest inflation rate in almost 30 years. 
     Wholesale prices have actually fallen for five of the last 
     six months. Despite the recent pickup in economic growth, 
     most economists believe we will have low inflation for months 
     and even years to come.
       Interest Rates: Since last November, long-term interest 
     rates (such as the rate on a home mortgage) have declined by 
     more than a percentage point and are now lower than they have 
     been in more than 20 years.
       The Trade Deficit: Since the mid-1970s, the U.S. has been 
     importing more goods than it has been exporting. The trade 
     deficit, which peaked at $152 billion in 1987, fell to $66 
     billion in 1991. Since then, severe recessions in Europe and 
     Japan, two of our major trading partners, have reduced their 
     ability to buy U.S.-made goods, raising our trade deficit to 
     $84 billion last year and more than $100 billion this year.
       The Budget Deficit: The deficit hit $290 billion in 1992, a 
     postwar record. But stronger economic growth this year and 
     some modest changes in economic policy reduced the deficit to 
     $255 billion in 1993. Under the President's economic program 
     enacted earlier this year, the deficit is projected to fall 
     to $200 billion or even less by 1998. Additional spending 
     reductions currently under consideration in Congress could 
     bring the deficit down even further.


   How Much of the Good News is Due to the President's Economic Plan?

       President Clinton's economic recovery plan has focused 
     primarily on reducing the federal budget deficit, bringing 
     down long-term interest rates to stimulate homebuilding and 
     business investment, and increasing public investment in 
     infrastructure, job training, and research and development to 
     help make the U.S. economy more competitive. As the President 
     rounds out his first year in office, the first two parts of 
     the program has been substantially accomplished, but Congress 
     rejected his call for more spending on public investment.
       Certainly not every bit of good economic news can be 
     credited to the Clinton plan, and some changes, such as the 
     recovery from the 1990-91 recession and renewed job growth, 
     were underway when he took office. But his efforts have led 
     to a smaller deficit, which in turn has helped bring down 
     long-term interest rates and stimulate major improvements in 
     housing starts and business investment. As a result, economic 
     growth has accelerated and job growth has improved 
     substantially throughout the year.


                    how long can the good news last?

       Much of the answer to that depends on the strength of 
     private business and industry in the United States. It could 
     last for some time. But I have two concerns:
       First, cuts in government spending and tax increases that 
     reduce the deficit help the economy in the long run by 
     freeing up resources for private investment, but they depress 
     economic activity in the short run. The President's program 
     included significant cuts in federal spending, both for 
     defense and non-defense programs, which will reduce output 
     and jobs in the affected industries. Tax increases will cut 
     consumer spending, but that should be minimized by the 
     concentration of new taxes among the wealthiest taxpayers. 
     Most of the spending cuts will occur when the economy should 
     be growing faster than it is today, so they should not hurt 
     growth this year or next. But another round of deficit 
     reduction that cuts too deeply, too quickly could dampen the 
     immediate economic outlook.
       Second, the strength and length of the pickup in economic 
     activity also depends on the Federal Reserve (Fed). For the 
     last 4\1/2\ years, the Fed has focused monetary policy on 
     reducing inflation, and they have largely succeeded. With 
     inflation under control, the Fed should now focus on 
     strengthening the economy and job growth. The low interest 
     rate policy of the past year is helping. But if fear of 
     inflation leads the Fed to raise interest rates just as the 
     economy starts showing stronger economic growth and job 
     growth, I am concerned that the economy could move back into 
     a new period of anemic growth and possibly another recession.

                          ____________________