What the next expansion could look like
NEW SOURCES OF STRENGTH
A decade ago, a surprise surge of high-tech capital investment pulled the economy out of recession. This time, growth will likely come from other sectors, such as biotech or medical care.
Although down from its highs in the recent boom, long-term productivity growth should run around 2%. That should allow the economy to grow at roughly a 3% clip--a half-point higher than GDP growth prior to the New Economy expansion.
SLOW JOB GROWTH
But the continued productivity gains mean companies will be able to expand without adding new workers. So unemployment may keep rising well after the recession ends.
A REBOUND IN PROFITS
Job cuts and falling real wages, together with strides in productivity, should give corporate profits a strong boost sometime in 2002.
Faster growth in Europe and Asia, compared with the U.S., could help narrow the U.S. trade deficit.
HIGHER SAVINGS RATE
The flow of money from foreign investors will slow. Instead, the U.S. will have to fund capital spending by increasing its savings rate.