Though growth has been slow and uncertain over the past six months, the U.S. economy is moving to higher ground.
Next week, statisticians at the Commerce Department will release their advance estimate for gross domestic product in the second quarter and revised data for the preceding three years.
Government insiders say growth in the first half of 1992 was at a rate of about 2%, in line my own forecast of six months ago.
The levels are changed, of course, reflecting the benchmark revision. But the growth rate was accurate. The stage is now set for an acceleration in growth.
Delayed Impact on Jobs
Monetary policy continues to be extraordinarily easy. Total bank reserves - the highpowered funds that are raw material for the money supply - rose at a rate of 19% from the third quarter of 1991 through the second quarter of 1992.
Jobs, a good proxy for overall activity, respond to changes in Fed policy with a lag of about a year. By this criterion, more-rapid expansion is just ahead.
The modest acceleration in business volume during the past six months led to exceptional gains in corporate profits. The rate of increase in pretax profits from current operations in the January - March period was roughly 20 times the rise in gross domestic product.
Business cannot possible maintain such outlandish spreads between sales growth and profit increases in the long run. Even so, similar gains should be part of the investment landscape through most of 1993.
Setting the Stage
Rigorous, sometimes brutal cost-cutting has reduced the break-even point of American industry. Cash flow from current operations will help trigger a boom in business investment in equipment. New orders for plant and equipment have confirmed the findings of the Commerce Department's survey of capital spending plans.
Real contracts and order for new plant and equipment (the best leading indicator of business investment) totaled a near-record $134 billion in the three months through May. That was a 16.7% annual rate of increase from the level in the six months through November 1991.
Over time, such outlays will help to cut costs further, thus sparking more gains in profitability.
Good News Isn't News
Meanwhile, news organizations and their accomplices in Wall Street continue to bash the economy. Reporters call attention to weak numbers; they often ignore strong data. More than 1.1 million adult workers 20 years old or older found new jobs from November to June.
But private employers added only 715,000 to their payrolls in June. That was less than normal, so, seasonally adjusted, jobs dropped by 117,000. You can guess which item was "news."
The trade deficit has deepened in recent months because of persistent strength in imports. Real imports have gone up at an annual rate of almost 12% since April 1991. This pattern is typical of a period of recovery.
Since 1986, real U.S. exports have risen at a rate of more than 10%. Exclusive of oil - more a matter of geology than economics - U.S. merchandise trade is close to balance. The modest deficit other than for oil is offset by the surplus in services.
Washington has again revised downward its measure of net foreign investment in the United States - the so-called U.S. foreign debt. The Commerce Department now says the market value of American assets overseas totaled $2.1 trillion in 1991. Foreign assets here were $2.5 trillion, resulting in a "debt" of $400 billion.
On a comparable basis, net investment in the United States in 1989 was $159 billion. By contrast, the figure given by the government two years ago was $682 billion in net foreign debt for 1989.
The actual net inflow of foreign capital in 1991 was only $4.8 billion, down sharply from the peak of $168 billion in 1987. This indicates basic gains in the nation's international balance sheet. It suggest a basis for strong growth.