The U.S. Recovery Could Give Inflation The Slip

Just as generals tend to plan for the last war, economists tend to predict the previous business cycle. Both base their predictions on historical patterns. Right now, for example, economists persist in scanning the horizon for inflation, the traditional strangler of a recovery. But this time the expansion, which began in March, 1991, is turning out to be the most unusual of postwar recoveries, says David D. Hale, chief economist at Kemper Securities. And the inflation watch may be premature.

Among its unique elements, this expansion took longer to gain momentum and is concentrated more heavily in equipment investment than any other. Equipment purchases account for more than 30% of total real growth in gross domestic product, vs. the usual 10% to 15% at this point in a recovery. In addition, far more of the economy's GDP growth comes from the surge in productivity--90%--than from the increase in the number of hours worked. Little wonder that this recovery has enjoyed the lowest annual inflation levels since the 1960s--2.8% on the consumer price index, vs. a postwar average of 3.6%.

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