When times are good, business planners must guard against complacency

This month, we enter the eighth year of this extraordinary economic expansion. Extraordinary not so much because of its length (we’ve had longer) or its magnitude (we’ve experienced stronger annual GDP gains over other cycles), but for its continued vigor after 84 mo of life.

In a normal economic expansion, inflation and unemployment have begun to creep up by this point and economic growth is well beyond its peak. However, unemployment is below 5%, inflation remains low, and 1997 saw the strongest gain in GDP for the entire life of the expansion.

The biggest danger now may be complacency. Last fall, many were dismissing the hyped-up, but slow-starting, El Nino as a nonevent. It turned out to be worth taking seriously. That type of situation is why it’s important to note a few items that might be considered “early warning” signs that this expansion won’t live forever. Signs of mortality include a decline in corporate profits, acceleration in the core CPI, and drops in orders for manufacturers’ exports and nondefense capital goods. Add to this the still-evolving “Asian crisis,” and there are plenty of reasons not to throw caution to the wind.

GDP still on a roll

(Annual change, %)

1993 2.3

1994 3.5

1995 2

1996 2.8

1997 3.8

1998* 2.7

1999* 2.3

*Forecast by Cahners Economics

Historical Data: Bureau of Economic Analysis

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