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Simply put, there's no double-dip in site. Here are the plentiful reasons why: Interest rates are low at 1.75%, and they look likely to remain low. Over the past month, the December 2002 Fed Funds future yield has fallen to 2.2% from 2.6% — a very positive sign. At 5.8%, the unemployment rate is lower than in any recent post-recession economy. A high average level of U.S. employment means fast future growth in GDP and productivity. The U.S. bond market had strong gains and the dollar didn't weaken much in last Friday's equity market sell-off, . So, there is no evidence that world markets are disillusioned with the U.S. in particular, nor that they are shifting capital out of the U.S. The U.S. will continue to lead the global recovery. Early June retail sales strengthened, according to the surveys by Johnson Redbook and Mitsubishi. This could be an indication that May's weaker retail sales were just a pause, not the start of a downward trend. Industrial production rose 0.2% in May, the fifth straight increase. The three-month annualized real growth rate in industrial production is 3.6%. The Institute of Supply Management reported strength in U.S. manufacturing and services in May. Importantly, new orders rose for the fifth straight month. Bond yields have fallen substantially. Declining bond yields are a helpful factor in equity valuation models. The decline will spur home refinancing and reduce borrowing costs for many businesses. The 10-year yield has fallen from 5.4% in March 2002 to 4.8% at present. Inflation is low, contributing to economic efficiency. The price of gold and commodities has risen substantially from the 2001 bottom, suggesting that deflation pressures are subsiding. Inventories have fallen to very low levels, creating the likelihood of future production increases. The inventory-to-sales ratio is at 1.35, the lowest in the ten-year history of the survey. Inventories in Japan and Europe have also declined to very low levels. Productivity growth is strong, leading to lower unit-labor costs and higher corporate profits. U.S. businesses continue to lead the world in innovation. Corporate earnings in the GDP accounts rose in both the fourth quarter of 2001 and the first quarter of 2002, and you can expect a rebound in business investment in the coming months. The signs are everywhere
that we're in good shape. So stay positive. This economy is coming back
together — piece by piece. — Mr. Malpass is the Chief International Economist for Bear Stearns.
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es,
there have been a few indications that the economy is slipping, including
a weakness in May retail sales and the University of Michigan's not-so-sterling
June poll on consumer confidence. But these are mere blips, and they're
not enough to corrupt a sustainable, piece-by-piece economic recovery.
