Posted on Sat, Jan. 06, 2007

 

ECONOMY

Record Sixth Straight Year of Expansion Ahead in 2007

BY MARK J. PERRY

mjperry@umflint.edu

 

It went largely unnoticed, but a historic event happened in November -- it was the fifth anniversary of the current U.S. economic expansion that started in November 2001.

 

And what an expansion it has been: Almost 10 million jobs have been created in the first five years of the expansion, which is 22 percent more than the number of jobs created in the first five years in the 1990s during the last economic expansion.

 

The job market is so healthy now that 15 states recorded historical-low unemployment rates in 2006 through November, with one more month to go. Never before have so many states set record-low jobless rates in a single year, and yet this phenomenal labor-market news has gone completely unreported.

 

It's now time to dismiss the ''jobless recovery'' myth once and for all. What has gotten a lot of attention is the ''stagnant wages'' story, which also turns out to be another myth that can now be discarded based on the most recent data.

 

Real wages for the average worker increased 2.8 percent last year, which translates into about $1,200 of increased purchasing power for the average household. It's no wonder that online retailers experienced record-setting sales this holiday season, with more than 4 million orders taking place on a single day.

 

Fringe benefits have also been increasing lately, contrary to another popular myth, at a rate almost double the growth rate of income. During this expansion, fringe benefits for the average worker have increased by more than 20 percent in real dollars.

 

As a direct result of the strong labor market and because so many companies are thriving, tax revenues collected by the U.S. Treasury keep breaking records. Revenues from personal and corporate income taxes surpassed $2 trillion in 2005 and broke the previous record set in 2000 at the height of the last expansion. Tax receipts in fiscal year 2006 rose by an additional 12 percent, and again by an additional 9 percent so far during the first two months of the current fiscal year. The tax stimulus of 2003 is working, bringing in record revenues and helping the economy grow.

 

As we start the sixth year of this economic expansion, we can expect the U.S. economy to continue to show its strength and resiliency in the coming year. The consensus among economists is that there are no signs that the economy will stumble in 2007, and we can expect a continuation of the current economic expansion and record job creation.

 

Why? Because energy prices have stabilized, oil is expected to remain around $65 per barrel in 2007, 20 percent below the 1981 peak in real dollars; inflation remains in check at 2 percent; interest rates are low and stable; the stock market keeps setting record highs reflecting a strong economic outlook; and the labor market keeps adding jobs.

 

Sure, the housing market has softened and the dollar has weakened, but that won't stop our booming economy. Declining home prices and falling mortgage rates are already starting to bring more first-time home buyers back to the market, and the weak dollar makes our exports cheaper. During the last year, exports of U.S. merchandise have increased by 16 percent, while imports of merchandise have increased less than 4 percent, thanks to the weak dollar.

 

Unfortunately, the booming five-year economic expansion gets dismissed so frequently that The Wall Street Journal has referred to it frequently as the ''Rodney Dangerfield economy.'' Given the longevity and resilience of the current economic expansion, perhaps the ''Energizer Bunny economy'' is a more accurate term. The U.S. economy just gets keeps on growing and growing, and will continue growing in 2007.


Mark J. Perry is an associate professor of finance and economics at the University of Michigan at Flint.