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Global Economy Taking Off: GDP Likely to Reach 5% in Q1

Tuesday, April 06, 2004

Press release from the issuing company

April 6, 2004 -- The global economy is picking up momentum, with signs of strength now emerging around the world, according to an analysis released by The Conference Board. U.S. Gross Domestic Product in the first quarter is likely to top 5%, and short-term signals suggest that U.S. business investment will surge in the first half of 2004. The Conference Board’s U.S. Leading Economic Index points to 5% growth or more this year and The Board’s forecast is at 5.3%. The global leading index is strengthening, with industrial rebounds intensifying in every global region. “Current low interest rates suggest that strong economic performance will extend into 2005,” says Gail D. Fosler, Executive Vice President and Chief Economist of The Conference Board. “The world is awash in liquidity and interest rates are low almost everywhere.” U.S. long-term rates are lower than they should be, given the economic fundamentals. Long-term bond yields typically rise when industrial activity accelerates in anticipation of greater credit demand and higher short-term interest rates. But corporate cash reserves are at all-time highs, profits are rising even more rapidly, and the Federal Reserve Board reinforces its commitment to a low interest rate environment at every opportunity. At some point, the U.S. 10-year rate will take another step up like it did late last year – probably when job growth begins to accelerate. “Economic activity is governed by cycles,” says Fosler. “For a wide range of reasons, usually driven by economic policy, the economic future does not unfold in a static, steady flow of activity but in waves of growth and opportunity which occasionally crash and take firms and sectors along for the ride. Some sectors are more influenced by economic cycles than others, nevertheless, all sectors are cyclical, whether they are in manufacturing or in services. So it is important to understand how sectors react to cycles and how that shapes how sectors do on a relative basis.” Computer Sector on the Way Up Change in the relative size of sectors occurs slowly. The computer and related equipment sector is projected to overtake the retail sector in “real” terms in 2012 and become the largest industry sector. Construction, which was number one in size in 1972-1992, will drop to number five in 2012, according to The Bureau of Labor Statistics and The Conference Board. Five of the fastest-growing industries between now and 2012 will be in the computer sector, according to The Conference Board and the BLS. At number one will be computer and peripheral equipment manufacturing. At number three: Internet services, data processing, and other information services, followed by computer systems design and related services. Software publishing is at number five. There are interesting shifts underway from more traditional services to “newer” service sectors – sectors that are fragmented and full of innovation and where prices, in many cases, are rising rapidly. Manufacturing has also declined as a share of the total economy, but the decline has been much more gradual than most people think. Manufacturing accounted for 29% of total output in 1972 and about 23% in 2002. As recently as 1992, manufacturing was 25% of total output. Economic recoveries are periods where all sectors make progress, some more so than others. Those industries which are able to make the most progress tend to grow the fastest during expansions. “The challenge for business is both to have the discipline to be cautious, cost conscious, and flexible throughout the cycle and to be aggressive in realizing business opportunities once the economy resumes growing,” says Fosler. “All sectors have to deal with volatility and are subject to business cycles. Virtually all sectors are subject to price pressures as the overall inflation rate in the economy declines. Some sectors are able to make more gains during expansions than others. Some are able to avoid the worst effects of recession. But no one is having fun all the time.”

 

 

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