Many observers panned the U.S. economy’s performance in 2004. These critics ranged from partisans to academics to media pundits. Even some on Wall Street joined in. Yet the economy shorted pessimism and continued to grow. A review of key economic indicators reveals that 2004 was indeed a very good year.
Stock Market Indices: All three major U.S. stock market indices increased for the second consecutive year, the first back-to-back annual gains since 1998-99. The Dow Jones Industrial Average rose 3.1 percent (10,453.92 to 10,783.01), the Nasdaq jumped 8.6 percent (2,003.37 to 2,175.44), and the S&P 500 climbed 8.9 percent (1111.92 to 1211.92). The Dow Jones Wilshire 5000 Composite Index, the broadest-based market index which was cited frequently by Fed Chairman Alan Greenspan, recorded the biggest gain of the year: 10.81 percent.
The Bond Market: The yield on the bellwether 10-year Treasury note actually fell from 4.27 to 4.23 percent despite a 125-basis point increase in the intended fed funds rate from 1 percent to 2.25 percent.
Gross Domestic Product: GDP, adjusted for inflation, increased 4.5 percent in the first quarter, 3.3 percent in the second, and 4 percent in the third. Real GDP is likely to exceed 3.5 percent on an annual basis when fourth-quarter data is released. As NRO Economics Editor Larry Kudlow notes, 3.5 percent is the nation’s “long-run growth trend.”
Employment: Few foresaw the U.S. economy adding 2.2 million new jobs, but 2004’s final nonfarm payroll employment report, released January 7, confirmed this positive trend. Last year was the first since 2000 to record net new jobs growth.
The new jobs report also shows that goods-producing employment recorded its first annual increase since 1999, with its largest component — manufacturing — showing its first gain since 1997 after six consecutive annual declines. Manufacturing finished in positive territory as a result of gains in the durable goods sector, including fabricated metals, computer and electronic products, and transportation equipment.
Here’s some more good news: The U.S. unemployment rate, after peaking in June 2003 at 6.3 percent, has fallen nearly a full percentage point. Meanwhile, total federal government employment is at a level last seen in mid-1966, and could fall for the second consecutive year for the first back-to-back decline since 1999-2000. The bad news is that state and local government employment is likely to continue its long upward expansion.
Industrial Production: The physical output of the nation’s factories, mines, and utilities expanded in 2004. When the Federal Reserve releases its final monthly data in mid-January it could reveal the fastest industrial-production growth rate in 5 years. The industrial production index, paced by consumer goods output, increased in eight of eleven months in 2004. And capacity utilization, a gauge of slack in the structure of production, is running at 77.9 percent — the highest level since 2000.
Of course, all of this good economic news will not stop the critics. The perpetual bears are always with us. Yes, there are years when economic indicators show slow or negative growth. But 2004 was not one of those years.
–Greg Kaza is executive director of the Arkansas Policy Foundation, an economic research organization based in Little Rock.