It may be a new year but the economic forecast for 1999 has a familiar ring.
Economists predict distinctly slower growth, somewhat faster inflation, slightly higher unemployment and, at best, lackluster stock market gains.
"I like to call 1999 a "bumpy soft landing,' " said economist Nicholas Perna of Fleet Financial Group in Hartford, Conn. "It will be a soft landing in the sense that it's a better-than-even-money bet that we're going to avoid a recession and bumpy in the sense that in some parts of the economy, namely manufacturing, it's going to feel a lot like a recession."
Perna's scenario, widely shared by forecasters, bears a striking resemblance to their expectations a year ago for 1998. Instead, despite an as-predicted deterioration in the trade deficit, the economy's growth remained nearly as robust as it was in 1997, inflation stayed tame and unemployment edged lower, not higher.
What happened? The answer, paradoxically, is: the global slump that started in Asia in mid-1997, toppled the Russian economy last summer and threatened Latin America.
"The U.S. economy turned out a lot stronger than expected, mainly because the consumer actually benefited from the global crisis," said economist David Jones of Aubrey G. Lanston & Co. in New York.
As predicted, the trade deficit climbed toward a record in 1998 _ probably of about $167-billion when the counting is done. And falling export sales contributed to the loss of more than 200,000 factory jobs.
But, because skittish investors poured their money into dollar-denominated investments, U.S. interest rates fell. With mortgage rates around 30-year lows, sales of new and existing homes hit records and many homeowners put money in their pockets by refinancing.
Slumping world demand pushed oil prices to levels _ adjusted for inflation _ rivaling the Depression's, giving consumers more cash.
On top of that, the stock market by the end of the year was again at record levels after a sharp sell-off in the late summer and early fall.
Thus, American consumers _ whose spending accounts for nearly two-thirds of economic output _ felt confident enough to spend nearly all of their after-tax income.
It can't happen again, economists insist, because all the pieces that fell into place can't possibly repeat themselves. Sooner or later, consumers must start saving more and spending less.
A consensus forecast for 1999 shows:
GROWTH: The economy should expand at a 2.2 percent annual rate, down from 3.6 percent in 1998, according to the consensus of 50 economists surveyed by Blue Chip Economic Indicators.
INFLATION: Consumer prices should increase 2.2 percent, up from a 1.6 percent annual rate during the first 11 months of 1998.
UNEMPLOYMENT: The unemployment rate, at a 29-year low of 4.5 percent in 1998, should average 4.8 percent.
INTEREST RATES: Long-term mortgage rates should stick near 7 percent. Many think something _ a renewed bout of turmoil overseas, perhaps in Brazil, or an unexpectedly sharp pullback in the United States _ will provoke the Federal Reserve to cut short-term rates again next year after three quarter-point cuts this fall. But, absent such a triggering event, both long- and short-term rates may fluctuate within a narrow range for some time.
STOCK MARKET: The profit outlook is bleak. Businesses are squeezed between their inability to raise prices in the face of overseas competition and their need to pay higher wages to keep skilled employees. Analysts don't think the Dow Jones Industrial Average can shoot up 27 percent as it did in 1997, or even repeat the nearly 20 percent gain of 1998.
RECESSION RISK: There should be enough momentum, overall, to carry the expansion into February 2000, making it the longest in U.S. history, surpassing the 1961-69 expansion in longevity.
But 40 percent of the world's economies are in recession, including Japan's, the second-largest. Declining oil prices, while a boon to consumers, are hurting important U.S. trading partners, such as Mexico. Other commodities _ from hogs to corn _ are falling too, hurting farm states.
"We continue to be an island of solid growth, but the sea around us is still threatening," said economist Robert Dederick of Northern Trust Co. in Chicago.