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COUNTRY REPORT

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1st quarter 2000

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ISSN 0269-6185

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United States of America 1

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000

Contents

3 Summary

4 Political structure

5 Economic structure

6 Quarterly indicators

7 Outlook for 2000-01

12 The political scene

14 Economic policy

16 The domestic economy16 Output and demand19 Employment, wages and prices23 Financial indicators24 Sectoral trends

26 Foreign trade and payments

29 Trade data

List of tables

7 Forecast summary9 Global assumptions

10 Economic results and forecasts14 Presidential budget proposals17 Gross domestic product19 Non-agricultural employment21 Price inflation22 Hours worked and earnings23 Financial markets27 Balance of payments27 International trade in goods and services, 199928 Trade balance by area, 199929 Foreign trade31 Structure of trade32 Direction of trade

2 United States of America


List of figures

12 Gross domestic product12 Dollar real exchange rates17 GDP and private consumption20 Wages and prices23 US equity prices



Summary

1st quarter 2000

The Republicans are optimistic about the presidential election in November,but could suffer losses in the congressional elections. The low inflation, highgrowth environment will not last, and interest rates will be raised further toslow down the economy by 2001. Growth in private consumption andinvestment will weaken as monetary policy is tightened. Trade will be less of adrag on growth in 2000-01. The current-account deficit will reach $417bn in2000, and the dollar will weaken once the economy starts to slow.

George W Bush has suffered preliminary setbacks in his bid for the Republicanpresidential nomination and his intellectual credentials have come underscrutiny. His tax cut plan has been criticised by the Federal Reserve chairman,Alan Greenspan. Al Gore has widened his lead over Bill Bradley for theDemocratic presidential nomination. The Reform Party is in turmoil.

Interest rates were raised further on February 2nd, reinforcing the strong-dollarpolicy. Mr Greenspan has been reappointed as chairman of the Federal Reserve.The proposed increase in the minimum wage is being tied to tax cuts. TheInternal Revenue Service wants to close corporate-tax loopholes.

• GDP growth accelerated in the fourth quarter of 1999, led by consumptionof durable goods and federal spending. Some components of privateinvestment are weak, but investment in high technology is booming. Importgrowth continues to outpace export growth.

• Labour demand remains exceptionally strong, especially for professionals.A 30-year low in the unemployment rate has had little effect on inflation. Mostsectors have witnessed modest gains in real wages. Labour unions haveincreased their membership by targeting immigrants.

• The stockmarket has fallen back from its all-time high. Strong loan growthin the fourth quarter of 1999 is a concern for regulators. Federal aid toagriculture has been found to favour large-scale agribusiness. Housing had arecord year in 1999. Internet companies have sparked some very large mergers.Consolidation in telecommunications continues. The merger binge in the oilindustry has suffered a setback.

The current-account deficit is widening rapidly, driven by a record trade deficit.The steel industry has turned to the courts in its efforts to limit steel imports.Mr Clinton continues to press for China’s entry to the World TradeOrganisation. The US plans to increase aid to Colombia.

Editor: Gerard WalshAll queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023

Next report: Our next Country Report will be published in June

February 21st 2000

Outlook for 2000-01

The political scene

Economic policy

The domestic economy

Foreign trade andpayments



Political structure

United States of America

Federal republic

Based on the constitution of 1787

Bicameral: Senate of 100 members directly elected on a plurality (first-past-the-post)system for a six-year term, with one-third of its members retiring every two years; Houseof Representatives of 435 members directly elected on a plurality basis for a two-yearterm. The Senate has the power to confirm or reject presidential appointments,including the cabinet, and to ratify treaties. The House of Representatives has the soleright to initiate revenue bills, although they may be amended or rejected by the Senate

Universal direct suffrage from the age of 18

November 1998 (House of Representatives and one-third of the Senate); next electionsdue in November 7th 2000 (presidential, House of Representatives and one-third ofthe Senate)

Executive president elected by popular vote via an electoral college of 538 membersrepresenting the states, for a maximum of two four-year terms. Currently Bill Clinton,who was re-elected in November 1996 along with Al Gore as vice-president, for anotherfour-year term ending in January 2001

Each of the 50 states, except Nebraska (which has a unicameral system), has abicameral legislature which follows the model of the federal legislature. The stateshave certain fiscal and legal rights, and it is often unclear whether state or federallaw has precedence. Some states now limit the number of terms that can be servedby their elected representatives

The administration is appointed by and responsible to the president; its senior officialsare subject to the confirmation of the Senate

Agriculture Dan GlickmanCommerce William DaleyDefence William CohenEducation Richard RileyEnergy Bill RichardsonHealth & human services Donna ShalalaHousing & urban development Andrew CuomoInterior Bruce BabbittJustice Janet RenoLabour Alexis HermanState Madeleine AlbrightTransportation Rodney SlaterTreasury Lawrence SummersVeterans’ affairs Togo West

Alan Greenspan

Official name

Form of state

Legal system

Federal legislature

Electoral system

National elections

Head of state

State legislatures

National government

Cabinet secretaries

Chairman of the FederalReserve Board



Economic structure

Annual indicators

1995 1996 1997 1998 1999

GDP at market prices ($ bn) 7,401 7,813 8,301 8,760 9,248

Real GDP growth (%) 2.7 3.7 4.5 4.3 4.0

Consumer price inflation (%) 2.8 2.9 2.3 1.6 2.2

Population (m) 263.0 265.5 267.9 270.3 272.6

Exports fob ($ bn) 577.7 614.0 681.7 670.2 683.0

Imports fob ($ bn) 749.6 803.3 876.4 917.2 1,030.2

Current-account balance ($ bn) –113.6 –129.3 –143.9 –220.6 –333.2

Reserves excl gold ($ bn) 74.8 64.0 58.9 70.7 60.5

Federal government budget balance (% of GDP) –2.2 –1.4 –0.3 0.8 1.4

Federal government debta (% of GDP) 67.2 67.3 65.6 63.4 60.5

Effective exchange rateb (av) 100.0 105.2 113.8 119.3 115.4

February 18th 2000 dollar effective exchange rateb 108.2

Origins of gross domestic product 1997 % of total Components of gross domestic product 1999 % of total

Agriculture, forestry & fishing 1.6 Private consumption 67.6

Mining 1.5 Federal expenditure 6.2

Construction 4.1 State & local expenditure 11.4

Manufacturing 17.0 Non-residential investment 12.6

Transport & utilities 8.3 Residential investment 4.4

Distributive trades 15.7 Stockbuilding 0.5

Finance, insurance & real estate 19.4 Exports of goods & services 10.8

Other private services 20.4 Imports of goods & services –13.5

Government & its enterprises 12.7

Statistical discrepancy –0.7

Principal exportsc 1999 $ bn Principal importsc 1999 $ bn

Capital goods (excl automotive) 310.6 Capital goods (excl automotive) 296.9

Industrial supplies 147.0 Consumer goods (excl automotive) 239.6

Consumer goods (excl automotive) 80.6 Industrial supplies 221.6

Automotive goods 74.7 Automotive goods 179.5

Food, feeds & beverages 45.3 Food, feeds & beverages 43.6

Total incl others 695.0 Total incl others 1,025.0

Main destinations of exports 1999 % of total Main origins of imports 1999 % of total

Canada 23.9 Canada 19.3

Mexico 12.5 Japan 12.8

Japan 8.3 Mexico 10.7

UK 5.5 China 8.0

Germany 3.9 Germany 5.4

EU 21.8 EU 19.1

a Year-end. b IMF index (1995=100). c Census basis.



Quarterly indicators

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Federal finance ($ bn)Revenue 378.5 544.1 412.5 412.6 401.6 564.4 448.6 443.6Expenditure 408.7 407.2 410.3 467.1 395.9 421.3 418.6 464.2Balance –30.2 136.9 2.2 –54.5 5.6 143.1 30.1 –20.6

Outputa

GDP at current prices (annual rates; $ bn) 8,610.6 8,683.7 8,797.9 8,947.6 9,072.7 9,146.2 9,297.8 9,477.1GDP at chained 1996 prices (annual rates; $ bn) 8,412.7 8,457.2 8,536.0 8,659.2 8,737.9 8,778.6 8,900.6 9,026.9 % change year on year 4.7 4.0 3.9 4.6 3.9 3.8 4.3 4.2Industrial production (1992=100) 130.9 131.9 132.8 132.9 134.6 136.1 137.7 139.9 % change year on year 5.7 4.8 3.8 2.9 2.8 3.2 3.7 4.5

Employment, wages & pricesa

Employment (m) 131.0 131.3 131.4 132.2 133.2 133.2 133.5 134.2Unemployment Actual (m) 6.38 6.08 6.24 6.12 5.95 5.93 5.87 5.73 Ratio (%) 4.6 4.4 4.5 4.4 4.3 4.3 4.2 4.1Average hourly earnings ($) 12.59 12.73 12.84 12.94 13.07 13.19 13.31 13.41Consumer prices (1982-84=100) 161.9 162.8 163.4 164.0 164.6 166.2 167.3 168.5 % change year on year 1.5 1.6 1.6 1.6 1.7 2.1 2.3 2.6Producer prices (finished goods; 1982=100) 130.5 130.6 130.5 131.0 131.4 132.3 133.6 134.8 % change year on year -1.7 -0.8 -0.6 -0.5 0.7 1.3 2.4 2.9

Financial indicatorsExchange rate ¥:$ (end-period) 132.1 140.9 135.3 115.6 120.4 121.1 106.9 102.2 €

b:$ (end-period) 0.929 0.912 0.854 0.857 0.931 0.968 0.938 0.995 $:£ (end-period) 1.680 1.663 1.696 1.664 1.612 1.575 1.647 1.616Fed funds target rate (end-period; %) 5.50 5.50 5.25 4.75 4.75 4.50 5.25 5.5010-year Treasury bond rate (av; %) 5.59 5.60 5.20 4.67 5.98 5.54 5.88 6.14M1 (end-period; $ bn) 1,076.0 1,075.3 1,070.9 1,121.3 1,097.4 1,098.4 1,086.6 1,149.9 % change year on year 0.7 1.0 1.0 2.1 2.0 2.1 1.5 2.6M2 (end-period; $ bn) 4,142.1 4,187.3 4,272.8 4,422.2 4,481.3 4,515.3 4,577.8 4,689.4 % change year on year 6.9 7.2 7.6 8.8 8.2 7.8 7.1 6.0Share pricesc (1941-43=10) 1,101.8 1,133.8 1,017.0 1,229.2 1,286.4 1,372.7 1,282.7 1,469.3 % change year on year 45.5 26.9 36.1 26.7 16.8 21.1 26.1 19.5

Sectoral trendsa

Unfilled orders (end-period; $ bn) 538.2 533.3 529.9 521.0 526.6 518.0 525.4 537.0Housing starts, private (av; ‘000) 132.1 130.8 136.4 141.7 147.7 133.7 138.1 137.6

Foreign trade and paymentsd ($ bn)Exportsa fob 170.7 165.2 164.3 170.1 164.3 165.9 173.6 n/aImportsa fob 225.5 228.7 229.2 233.7 238.5 250.3 265.7 n/aTrade balancea –54.9 –63.5 –65.0 –63.6 –74.2 –84.4 –92.1 n/aServices balancea 21.5 21.5 19.2 20.3 20.2 19.3 18.3 n/aIncome balancea 0.3 –0.6 –7.0 –4.9 –4.3 –4.6 –4.9 n/aCurrent-account balancea –43.1 –52.4 –63.5 –61.7 –68.7 –80.9 –89.9 n/aReserves excl gold (end-period; $ bn) 58.3 60.1 64.6 70.7 63.3 64.6 62.4 60.5

a Seasonally adjusted. b Ecu pre-1999. c Standard and Poor’s 500 composite index. d Balance of payments basis.Sources: Government Printing Office, Economic Indicators; Department of the Treasury, Monthly Treasury Statement. IMF, International Financial Statistics.



Outlook for 2000-01

Forecast summary

(% change year on year unless otherwise indicated)

1998a 1999a 2000b 2001b

Real GDP 4.3 4.0 3.8 2.4

Industrial production 4.3 3.6 4.8 2.5

Consumer prices 1.6 2.2 2.7 2.7

Unemployment rate (% of labour force) 4.5 4.2 4.1 4.6

3-month US commercial paper rate (%) 5.3 5.1 6.2 5.3

10-year government bond yield (%) 4.6 4.5 5.6 5.9

Federal government budget balance (% of GDP) 0.8 1.4 1.6 1.6

Current-account balance ($ bn) –220.6 –333.2c –416.8 –426.9 % of GDP –2.5 –3.6c –4.3 –4.2

Average exchange rates $ nominal effective (1995=100) 119.3 115.4 109.2 106.0 $ real effective (1995=100) 120.0 117.6 112.8 110.7

a Actual. b EIU forecasts. c EIU estimates.

The contest for the Republican presidential nomination has already produced along list of casualties, with the Arizona senator, John McCain, now the onlyserious challenger to the governor of Texas, George W Bush. All other hopefulshave dropped out of the race except for Alan Keyes, a chat-show host andformer US diplomat. Mr Bush remains the favourite for the Republicannomination, while the vice-president, Al Gore, has re-established himself as theclear favourite over the New Jersey senator, Bill Bradley, in the race for theDemocratic nomination.

With the country at peace and experiencing its longest-ever economicexpansion, the electorate is not too worried about either the health of theeconomy or the state of foreign relations. It is true that there are real choices tobe made about healthcare, education and gun control, and about what to dowith the budget surplus, but the electorate is likely to place equal importanceon the personal qualities of the candidates. This is especially the case in thewake of the Monica Lewinsky affair and the impeachment proceedingsbrought against the current Democratic president, Bill Clinton.

After eight years of the Clinton presidency, nothing matters more toRepublicans than to recapture the White House, which partly explains whyMr Bush has been so successful at raising campaign funds. A presidential raceon November 7th between Mr Gore and Mr Bush is still the most likelyoutcome of the primaries. Opinion polls from last year gave Mr Bush the edge,but Mr Gore has been gaining popularity in the last few months, and a fewpolls have actually shown him ahead of Mr Bush. The race will be very roughand very close. Both Mr Gore and Mr Bush used direct negative attacks on theirchallengers, and are likely to use them on each other.

A Gore-Bush presidentialrace will be close

The presidentialfield narrows

The personal qualities ofthe candidates come

under scrutiny



All 435 members of the House of Representatives are also up for re-election onNovember 7th. There are currently 222 Republicans, 211 Democrats and twoindependents, one almost always voting with the Democrats, and the othervoting with the Republicans. The Democrats need a net gain of only six seatsto take control of the House. Incumbents almost always win re-election,especially in good economic times, so the best opportunity for capturing a newseat is when the incumbent does not stand for re-election. Since moreRepublican incumbents are retiring this year than Democrats, the Democratshave the highest chance for a net gain. If the Democrats do succeed incapturing control of the House, their majority will be very slim. The Democratswill have a much more difficult, if not impossible, time taking back the Senate.Only 33 of the 100 senators will be up for re-election in November. TheDemocrats would need at least a net gain of four seats to take control of theSenate. This would require that virtually every closely contested seat goes tothe Democrats.

The current US economic expansion (at 107 months in January) has nowbecome the longest in US history, and growth still remains extremely rapid. Inthe final quarter of 1999 the economy expanded at an annualised rate of 5.8%,the second successive quarter that growth approached 6%. And there is still nosign that a slowdown is in prospect. Employment growth remains strong,unemployment is at a record low of about 4% of the labour force, real personalincome is rising by about 4% per year, equity prices remain high (boostingpersonal sector wealth), and consumer confidence has hit a new record. Thereare some signs that the run-up in bond yields in the second half of 1999 hasslowed some interest-rate sensitive sectors of the economy such as residentialinvestment. But most sectors are not weakening—significantly more monetarytightening will be needed if a generalised slowdown is to be achieved.

Strong growth had not, until recently, been feeding through into higher infla-tion. Even as unemployment fell, real wage growth remained muted. There areseveral explanations for this—the strength of the dollar in 1997-98, the weak-ness of global commodity prices and the Asian crisis (cutting the price of Asiangoods on world markets). But by far the most important explanation is theimpressive acceleration in labour productivity growth over the past few years—in the year to the fourth quarter 1999, output per hour worked in the businesssector rose by 3.3%, so keeping growth in unit labour costs down to just 1.2%.

But some of these factors are starting to reverse. Oil prices have almost trebledin the past year, the Asian collapse is far behind us and growth in the region isapproaching pre-crisis rates, and the dollar has weakened (on a trade weightedbasis) by some 7% since its 1998 high. Strong productivity growth is stillkeeping unit labour costs down, and hence the labour market itself is not yetpushing up the inflation rate. But the other factors are starting to have animpact—headline inflation is starting to creep up (albeit largely owing to therise in energy prices) and the consumer expenditure deflator (a broader pricemeasure) was up by 2% in the year to the fourth quarter 1999, the highest ratefor two years.

Democrats are relativelywell placed for the

House elections

The US has enjoyed itslongest-ever expansion—

—without a pick-upin inflation—

—but this may not last—



The Federal Reserve (Fed, the central bank) is concerned that the pace ofgrowth—and the implied further tightening in the labour market—willeventually lead to employment costs outstripping productivity growth,resulting in a wage-induced pick-up in inflation. In addition, it is worriedabout the large current-account deficit and the unusually high level of private-sector borrowing. To counter this, the Fed funds target rate has been raised fourtimes (25 basis points each time) since mid-1999, and we expect at leastanother 75 basis points of tightening during 2000, taking the Fed funds targetrate to 6.5%. And the risks to this forecast seem to be on the upside—rates mayhave to rise by more in order to achieve the economic slowdown the Fed wantsto see. Given the current strength of consumer confidence (and the apparentbuoyancy of the equity market even in the face of rising official interest rates),it is quite plausible that rates will have to rise by 150 basis points in order toslow the economy significantly. One factor which is working against the Fed isthe bond market—even as inflation expectations are rising, long-term bondyields are actually falling. The strong federal fiscal position is allowing thegovernment to repurchase debt, cutting the supply of long bonds and soraising bond prices (and lowering yields). And this is (at least in part) offsettingthe policy tightening under way at the short-dated end of the yield curve.

Global assumptions

1998 1999 2000 2001

GDP growth rates (%)Canada 3.1 3.4 2.8 2.5Japan –2.5 0.6 0.7 1.4Mexico 4.8 3.3 4.0 4.4EU 2.7 2.0 2.6 2.5World average (market exchange rates) 2.2 2.6 2.9 2.7

Exchange rates (av)C$:US$ 1.48 1.48 1.46 1.45¥:US$ 131 114 100 99¥:€ 147 122 109 117Ps:US$ 9.1 9.7 10.9 11.8US$:€ 1.12 1.07 1.10 1.19

In our view, the policy tightening we are assuming (a further 75 basis points)should be enough to deliver an economic slowdown late this year and into2001. Nevertheless, we estimate that in 2000 growth will average 3.8% (almostas strong as in the last four years) and it will only be in 2001 that growth dropsto a below-trend 2.4%. This will be enough to ease some of the pressures in thelabour market and also stabilise the external imbalance. And as equity pricescome under pressure and employment growth weakens, the private sector willstart to rebuild its savings rate and cut back on borrowing.

In the short term, consumer spending seems set to remain very strong. Incomegrowth is rapid, unemployment low, and confidence at a record high. But overthe course of 2000 we expect the pace of consumption growth to slow. Interestrates have risen and are set to rise further. Personal wealth—which has beenboosted by the huge gains in equity prices in recent years—is set to grow moreslowly in 2000. Equity prices are already rising more slowly than in the recent

—to slow economic growthby 2001

Consumer spending willweaken as policy is

tightened

—and interest rates are setto rise further—



past, and a sustained tightening by the Fed may well cause share prices to stallor even fall back. This will prompt the personal sector to increase its saving outof current income and discourage it from taking on new debt. We expectprivate consumption growth in 2000 to average 4.2% (about one percentagepoint slower than in 1999), and to ease further to 2.5% by 2001.

Economic results and forecasts

(chain 1996 $ bn unless otherwise indicated; % change year on year in brackets unless otherwiseindicated)

1999(current prices) 1998a 1999a 2000b 2001b

Private consumption 6,254.9 5,698.6 5,998.7 6,250.8 6,407.4 (–) (4.9) (5.3) (4.2) (2.5)

Federal government expenditurec 570.8 526.1 541.4 551.6 550.0 (–) (–0.9) (2.9) (1.9) (–0.3)

State & local expenditurec 1,057.9 954.0 993.0 1,026.8 1,057.6 (–) (3.2) (4.1) (3.4) (3.0)

Non-residential investment 1,166.5 1,122.5 1,215.5 1,305.4 1,365.4 (–) (12.7) (8.3) (7.4) (4.6)

Residential investment 410.9 350.2 375.4 370.9 372.0 (–) (9.2) (7.2) (–1.2) (0.3)

Final domestic demand 9,461.0 8,651.3 9,123.9 9,505.5 9,752.4 (–) (5.4) (5.5) (4.2) (2.6)

Stockbuilding 44.3 74.3 41.9 50.0 41.3 (–) (0.1)d (–0.4)d (0.1)d (–0.1)d

Total domestic demand 9,505.3 8,725.6 9,165.8 9,555.5 9,793.7 (–) (5.5) (5.0) (4.3) (2.5)

Foreign balance –256.8 –215.1 –324.5 –384.2 –405.0 (–) (–1.3)d (–1.3)d (–0.7)d (–0.2)d

Residual – 5.8 19.7 25.0 25.0

GDP 9,248.4 8,516.3 8,861.0 9,196.3 9,413.8 (–) (4.3) (4.0) (3.8) (2.4)

Exports of goods & services 996.3 1,007.1 1,042.5 1,124.0 1,203.3 (–) (2.2) (3.5) (7.8) (7.1)

Imports of goods & services 1,253.1 1,222.2 1,367.0 1,508.2 1,608.3 (–) (11.6) (11.8) (10.3) (6.6)

a Actual. b EIU forecasts. c Includes capital expenditure. d Contribution to GDP growth.

Government consumption (which includes pay and procurement, but notsocial security spending) is set to expand by some 2.9% in 2000, slowing to1.8% in 2001. But this masks distinct differences between state and localgovernment spending, and consumption at the federal level. Federal spendingis expected to grow by 1.9% in 2000. But that has less to do with spendinggrowth through the year than with spending related to the so-calledmillennium bug late in 1999. This raised the level of federal consumption (inreal terms) in the fourth quarter so dramatically that even as expenditure fallsslightly during 2000 it will still average a higher level than that seen in 1999.Despite the federal budget surplus, programme spending will remain strictlyunder control and federal spending will fall slightly through 2001. But inabsolute terms, state and local spending is about twice that of federal spending,and is expected to grow by an average of 3.2% in 2000 and 2001. The states

The states will drive publicconsumption growth



have a better fiscal position than the federal government (with less debt, andno long-term social security concerns), and hence do not face pressures torestrict spending in the same way as the federal government. This growth instate and local government spending is more than enough to offset theexpected decline in federal consumption.

Investment growth is also set to slow, but not until later in 2000. The run-up inlong-term interest rates in the second half of 1999 seems to have already hadan impact on building investment. Both residential and non-residentialstructural investment fell during the second half of last year. And with policytightening set to continue, we expect further declines in these forms ofinvestment in the coming months. But investment in equipment and softwareremains fairly strong—a slight slowdown in spending in the fourth quarterlooks set to be reversed in the opening months of 2000, and strong growth inthis type of spending seems likely through much of the year. But towards theend of the year, and certainly in 2001, tighter monetary policy and a moremuted demand outlook seem likely to slow investment growth. A less buoyantequity market will also hamper investment by raising the cost of equity financeto companies.

Net trade will continue to be a drag on growth during 2000, albeit less so thanin 1998 or 1999. The recovery in global export demand has allowed the USmanufacturing sector to resume sales growth in overseas markets, but withdomestic demand sucking in imports very rapidly, the external sector is stillexpected to subtract 0.7% from GDP growth this year. In 2001, as the economyslows and the dollar weakens, import growth is expected to weaken too. Yetexternal demand—and hence exports—should remain reasonably strong. Thenet effect is that trade will be only a very slight drag on growth during 2001.

With the economy expected to slow later this year and into 2001, the chancesof a significant pick-up in inflation seem minimal. But some acceleration ininflation is inevitable—indeed, has already started. The main driving force isthe dramatic increase in oil prices since early 1999, which is feeding throughinto transport and energy prices directly, and indirectly into goods prices viahigher operating costs. In addition, the expected softening of the dollar willpush up the costs of imported finished goods and raw materials. But, on theassumption that the Fed manages to slow the economy before the tightness inthe labour market starts to make an impact on unit labour costs, inflation looksunlikely to rise beyond 2.7% on an annual average basis, although it may wellexceed 3% in some months.

The strength of the US economy has translated into continued strength in thedollar. Against the euro, the dollar rose temporarily through parity, whileagainst the yen, it has risen from ¥101:$1 at the beginning of the year to¥109:$1 by mid-February. And as long as the US economy remains strong, andprospects in Japan and the euro area are less positive, dollar strength willcontinue. Indeed, higher US interest rates will help perpetuate this. But oncethe US economy begins to slow, the theme over the coming 12-18 months willbecome one of dollar weakness—and consequent yen and euro strength.

Investment spending onequipment and software

will weaken later this year

Trade will be less of a dragon growth in 2000-01

Inflation is set to rise, butnot dramatically

US economic strength hastranslated into

dollar strength—



Financial markets are becoming more optimistic about Japanese and euro-areagrowth prospects, and later this year they are also likely to be more pessimisticabout the outlook for the US.

The key question is how far the dollar will fall. Notwithstanding the recentmovements, the dollar has already slipped back markedly against the yen—from a high of ¥125:$1 in May 1999, the dollar is now trading at ¥109:$1. Witha gradual broadening of the private-sector recovery in Japan we expect thedollar to fall further over the coming months, dropping below ¥100:$1 by thesecond half of 2000. Likewise, with growth in the euro area likely to acceleratestrongly through the coming year, we expect a fairly marked fall in the dollarduring 2000, with the currency reaching $1.17:€1 by the end of the year.

The external imbalance (coupled with a domestic savings imbalance) is one ofthe most worrying aspects of the current US expansion. We estimate that thecurrent-account deficit averaged $333bn (3.6% of GDP) in 1999, some $110bnmore than in 1998. And with growth this year expected to be robust (especiallyin the first half), the current account looks set to deteriorate further—averaging$417bn in 2000 (4.3% of GDP). But the forecast US economic slowdown(coupled with continued growth in global demand for US exports) shouldallow the deficit to stabilise in 2001, and fall slightly as a share of GDP late inthat year and into 2002.

The political scene

Early events in the campaign for the Republican presidential nomination,specifically the Iowa party caucuses on January 24th and the New Hampshireprimary on February 1st, did not favour the governor of Texas, George W Bush.These preliminary events, though ostensibly the first official steps in theprocess of electing the next president, are actually a peculiar combination ofthis official purpose and a capricious spectacle. The scale of the victory in NewHampshire for John McCain, the Arizona senator, gave his campaign renewedvigour and unnerved the Republican party establishment which is strongly

Mr Bush sufferspreliminary setbacks in the

presidential race—

—but the dollar willweaken once the economy

starts to slow

The current-account deficitwill reach $417bn in 2000



backing his rival. Mr Bush’s campaign recovered some of its former confidenceafter he won the South Carolina primary on February 19th. The most criticaldate in the primary calendar will be March 7th, or Super Tuesday, when 11states, including California and New York, will hold their primary elections.Two of the three minor contenders, a wealthy publisher, Steve Forbes, and aChristian leader, Gary Bauer, dropped out of the race in February. A USdiplomat and former presidential hopeful, Alan Keyes, was still in the race as ofFebruary 21st.

During the first few months of his presidential campaign, Mr Bush was doggedby allegations of cocaine use in his youth. However, the media dropped thestory as the general public seemed to show little interest in it. Recent probes ofMr Bush have focused on his intellect and his knowledge of current affairs.Reporters at times mockingly quiz Mr Bush about foreign affairs with theapparent objective of exposing associated deficiencies. Mr Bush, in defendinghimself, tends not to claim that he is especially intelligent but simply disputesthe relevance of such knowledge to the role of the president. The generalpublic appears to believe that Mr Bush could have some deficiencies, but alsothat these are not necessarily an insurmountable problem in a president whochooses talented staff and delegates wisely. Ronald Reagan is generally felt tohave embodied this combination and to have served effectively as president.

Although he was conspicuously reluctant to go beyond his commitment to“compassionate conservatism” in the early days of his campaign, Mr Bushunveiled in December detailed plans for tax cuts of more than $1trn over tenyears. (This would be an even bigger tax cut than the $792bn sought bycongressional Republicans during the last round of budget negotiations, aproposal that was vetoed by President Bill Clinton.) Under Mr Bush’s proposal,the current five-rate income-tax structure (15%, 28%, 31%, 36% and 39.6%)would be replaced by a lower four-rate structure (10%, 15%, 25% and 33%).Mr Bush would also double the child tax-credit from $500 to $1,000 andreduce the so-called “marriage penalty” by restoring a deduction that wasremoved in 1986. Mr Bush would eliminate inheritance taxes (notwithstandingthe fact that a negligible proportion of Americans are affected by the tax) andcreate a permanent tax credit for business R&D.

Mr Bush’s plan has attracted criticism from the recently reappointed FederalReserve Board (central bank) chairman, Alan Greenspan. Mr Greenspan favoursreducing the federal deficit rather than tax cuts, but he prefers the latter toincreased spending, so his opposition to Mr Bush’s plan is not diametric. It isunusual for a Federal Reserve chairman to have significant influence over fiscalpolicy. Mr Greenspan, however, commands singular respect at present becauseof the contribution that he is felt to have made to economic stability andprosperity during the nine years since the last recession.

The current vice-president, Al Gore, has led the race for the Democraticnomination throughout the contest, with his apparent lead over the formersenator for New Jersey, Bill Bradley, ranging between 5% and 15%. As ofFebruary, that lead appeared to be at the larger end of the range. Mr Bradley

—as his intellectualcredentials come

under scrutiny

Mr Bush focuses ontax cuts—

Mr Gore has widened hislead over Mr Bradley

—although his plan hasbeen criticised by

Mr Greenspan



has suffered some loss of support over the revelation of a minor heart defectwhich causes him to have occasional bouts of heart palpitation. No one seemsto want to cite this fact as a reason to support Mr Gore, but Mr Bradley’s healthproblem is a significant liability nevertheless.

The deep schism in the Reform Party between supporters of Ross Perot, theparty founder, and supporters of the governor of Minnesota, Jesse Ventura,culminated in Mr Ventura’s resignation from the party in February. After theannouncement, Mr Ventura’s hand-picked party chairman was replaced by aPerot supporter, and his choice for the party’s presidential candidate, a realestate mogul, Donald Trump, announced he would not seek the party’snomination for president. This leaves Pat Buchanan, a right-wing formerRepublican, as the front-runner, although he has so far failed to ignite the samesort of excitement that marked his previous presidential bids. With the ReformParty in turmoil, Mr Perot could decide to launch his third presidential bid.

Economic policy

President Bill Clinton transmitted his budget proposals for 2000/01 (October2000-September 2001) to Congress on February 7th. The budget calls for$1.84trn in spending in 2000/01, an increase of 2.5% on 1999/2000. Itincludes spending increases on Democratic favourites like healthcare,education and the environment, as well as increases for military spending andmodest tax cuts, primarily for low- and middle-income taxpayers. Most of theprojected budget surplus of the next ten years would be used to shore up socialsecurity and abolish the national debt by 2013. The president’s proposals arethe starting point for this year’s round of budget negotiations that will last wellinto September, if not later. Already the Republicans are complaining that thereis too much new spending on social programmes and not enough tax cuts.Also, some Democrats are objecting to the emphasis on retiring the nationaldebt rather than spending more on social and environmental issues.

Presidential budget proposals

($ bn; fiscal yearsa)

1999b 2000c 2001d

Receipts 1,827 1,956 2,019

Outlays 1,703 1,790 1,835

Surplus 124 167 184

a Ending in September of years shown. b Actual. c Estimates. d Proposed.Source: Office of Management and Budget, The Budget of the US Government.

The Federal Reserve Board (the central bank) raised its base interest rates onFebruary 2nd by 25 basis points, as it did in November, August and June of1999. The more significant of the Fed’s two interest rates, the Fed funds targetrate, was increased to 5.75%, its highest level since July 1995. Commercialbanks collectively have raised their prime lending rates to 8.75%. An inflation

Interest rates are raisedfurther—

Mr Clinton initiates budgetnegotiations for 2000/01

The Reform Party isin turmoil



rate of roughly 2% thus implies a real interest rate of about 6.75%, which isvery high by historical and international standards. The Fed chairman, AlanGreenspan, has stressed repeatedly that higher borrowing rates are necessary inorder to contain inflationary pressure and that inflation presents the gravestpotential risk to the overall health of the economy.

Aside from constraining excess demand and thus quelling inflation pressure,increased interest rates are consistent with the Treasury’s strong-dollar policy.This policy was initiated under a previous Treasury secretary, Robert Rubin, andhas been adopted by his successor, Lawrence Summers. It is not maintainedwith any trade-related considerations in mind but so as to suppress any undueinflationary pressure that might originate abroad, such as that associated withrising energy prices. The strong-dollar policy reduces demand for US exports,and thus can be cited as a contributor to the widening of the trade deficit inrecent quarters. This deficit, however, is widely understood to result from therelative strength of the economy and of the dollar, and thus is not as yet of anygreat concern to the general public.

As has become characteristic of Mr Greenspan’s chairmanship of the Fed,management of the money supply has been undertaken seemingly so as tocounterbalance interest-rate policy, thus allowing overall monetary policy tosteer a middle path of sorts. In 1999, a year during which real interest ratesclimbed by about 200 basis points, seasonally adjusted M2 and M3 rose by 6%and 8.1% respectively (far above the 2.7% rate of consumer price inflationduring the year). The narrow measure of the money supply showed moremoderate increases but is no longer considered to be a meaningful indicator ofpurchasing power given the prevalence of debt financing. No doubt such rapidincreases in the money supply have helped to sustain consumer demand in theface of rising interest rates and slow growth in real wages.

Mr Clinton nominated Mr Greenspan, who is now 73 years old, for a fourthconsecutive term as Fed chairman. Mr Greenspan’s first term began in 1987,immediately before the stockmarket crash of that year. He received some blamefor failing to counteract the general credit-contraction of 1990, which appearsto have contributed to the onset of moderate recession the following year.Otherwise, his tenure at the top of the Fed is perceived as having been highlysuccessful. Although Mr Greenspan has differed with many other office-holderson policy matters, including Mr Clinton himself in 1999 over the president’ssuggestion that part of the social security system be indexed to inflation, allpresidential hopefuls have endorsed Mr Greenspan’s nomination. The Senateconfirmed his reappointment on February 3rd.

Mr Greenspan’s pre-eminence as an architect of monetary policy has affordedhim great credibility in all areas of economic analysis. His views are cited fre-quently on issues associated with social security, exchange rates and taxation,though the giving of advice on such matters is not part of his official duties.This rise to prominence of Mr Greenspan on these non-monetary matters hasbeen accompanied by a commensurate diminution in the influence of thosewho might otherwise offer advice on such issues, in particular the chairman of

—while broad money isallowed to grow rapidly

Mr Greenspan has beenreappointed as Fed

chairman—

—thanks to his highcredibility

—reinforcing the strong-dollar policy—



the president’s Council of Economic Advisers. One disadvantage ofMr Greenspan’s singular influence is that few other public-sector economistsare credible as potential successors.

Congress has begun to acknowledge that an increase in the minimum wage islikely to be tied to specific tax cuts. Democrats, especially Mr Clinton, deeplywant an increased minimum wage while Republicans seem to feel roughly asstrongly about major tax cuts. It appears nearly certain that an increase in theminimum wage would amount to $1 per hour (on top of the current rate of$5.15 per hour) and that implementation would occur over a period of at leasttwo years. The Senate has approved a Republican-sponsored proposal to raisethe minimum wage by $1 per hour over three years combined with $18.4bn incorporate tax cuts. Mr Clinton almost certainly would veto such a proposal.The Senate rejected a Democrat-sponsored proposal to raise the minimumwage by $1 over two years while granting a tax-cut package of $9.6bn over fiveyears. The details of any future exchange of “wage increase for tax cuts” arelikely to lie somewhere between these two proposals.

The Internal Revenue Service (IRS) has announced that it will establish a newunit with the aim of uncovering illegal corporate tax-shelters. The federalgovernment claims that such schemes cost about $10bn per year in lost taxrevenue and serves to shift the overall tax burden towards small business andindividuals, since the latter typically lack the wherewithal to exploit suchtechniques. The IRS not only plans to levy penalties on corporations that arefound to use illegal shelters but will punish the accounting, law and financial-services companies that designed and promoted the shelters. Representatives ofbusiness have vowed to oppose the IRS plan vigorously; accordingly, it is by nomeans certain that the proposal will take effect as planned or will endure. ThisIRS proposal essentially represents the second phase of a broader pledge toappease individual taxpayers who, according to congressional investigation,had been systematically mistreated by the federal tax authorities.

The domestic economy

Output and demand

Real GDP grew at a blistering annualised rate of 5.8% in the fourth quarter of1999, pushing growth for the year as a whole to 4%. GDP growth was rapid notso much because its underlying strength increased but because federalspending, defence spending in particular, spurted ahead. Exceptional growth infederal spending, with some help from very strong growth in the consumer-durables sub-sector, more than offset moderation in the growth rate ininvestment to leave the overall GDP growth rate extremely high.

GDP growth accelerated inthe fourth quarter—

The IRS wants to closecorporate-tax loopholes

The proposed minimum-wage increase is being tied

to tax cuts



Gross domestic product(% real change at annualised rate unless otherwise indicated)

1998 1999 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Private consumption 6.1 3.9 4.6 6.5 5.1 4.9 5.3 Durable goods 11.2 4.1 20.4 12.4 9.1 7.7 11.8 Non-durable goods 6.7 2.4 5.0 8.9 3.3 3.6 6.1 Services 4.8 4.7 1.5 4.2 5.2 5.0 3.5

Government consumption & investment 6.0 1.2 2.9 5.1 1.3 4.5 8.4 Federal 11.9 –2.3 3.8 –0.5 2.1 4.1 16.0 State & local 3.0 3.2 2.3 8.2 0.9 4.8 4.4

Private fixed investment 12.5 2.0 13.8 9.1 6.6 6.8 1.5 Non-residential 12.1 0.0 15.3 7.8 7.0 10.9 2.5 Structures 7.1 –6.6 5.8 –5.8 –5.3 –3.8 –5.3 Equipment & software 13.8 2.4 18.6 12.5 11.2 15.7 4.9 Residential 13.6 8.1 9.8 12.9 5.5 –3.8 –1.2

Final domestic demand 7.2 3.1 6.0 6.7 4.7 5.2 5.2

Change in stocksa 43.1 76.1 70.7 50.1 14.0 38.0 65.4

Total domestic demand 4.0 4.7 5.7 5.8 3.2 6.3 6.3

Exports of goods & services –4.0 –1.7 16.1 –5.5 4.0 11.5 6.9

Imports of goods & services 13.0 5.2 10.8 12.5 14.4 14.9 10.6

GDP 2.1 3.8 5.9 3.7 1.9 5.7 5.8

a Chain 1996 $ bn.Source: Department of Commerce.

Characteristic of the pattern demonstrated in recent years, growth in privateconsumption was led by durable goods, with non-durable goods also strongand services healthy but unremarkable. Durable goods tend to embody a largerluxury component than non-durable goods: the most significant items in thedurables category are cars and furniture, while the largest in the non-durablescategory is food. During periods of exceptionally strong economic growth,such as the current period, luxury items tend to absorb a disproportionateshare of spending.

—led by consumption ofdurable goods—



Continued strength in consumer demand is somewhat surprising given themoderate pace of real wage increases. Consumers apparently have maintainedspending growth through the combined effect of three sources: the continuedstrength of the stockmarket, a renewed interest by lenders in making consumerloans and further reductions in the savings ratio. At the end of 1999 personalsavings as a proportion of disposable income stood at 2.4%, down from 3.7%in 1998 and 4.5% in 1997.

Federal spending, of which about 60% tends to be on defence, rose at aremarkable annualised rate of 16% in the fourth quarter of 1999. Both defenceand non-defence spending increased rapidly in the fourth quarter, with growthhigher in the defence category. Other types of federal spending have beenallowed to increase in the light of preparations for the so-called millenniumbug and the unexpectedly positive news about successive budget surpluses.State and local spending continues to achieve characteristically substantial, butnot extraordinary, increases as such governments struggle to meet demand fortheir two primary services: education and law enforcement.

Both business investment in structures and residential investment fell in thefourth quarter of 1999. This may have resulted, in part, from increases inmortgage interest rates in the latter months of 1999 and increased borrowingrates generally. While this may explain most of the drop in residentialinvestment, it cannot explain the drop in business investment in structuresgiven that this has dropped during each quarter of 1999. This poorperformance is likely to have resulted from a strategic investment decision inthe light of relatively flat profits during 1999, which squeezed the volume ofinvestable funds. In order to maintain investment in equipment and softwareat desired levels it may have been necessary to restrict investment in structurescommensurately.

Business investment in equipment and software rose by an annualised rate of4.9% in the fourth quarter of 1999, seemingly healthy but far below thedouble-digit growth rates recorded during recent quarters. This category ofinvestment, in fact, contains very distinct components that have achievedhighly differing results. In the fourth quarter of 1999 the informationtechnology component of investment rose at an annualised rate of 14.4%,while investment in industrial equipment rose at a modest 1.3%. In addition toinvesting in information technology, which grew by almost 22% in 1999 as awhole, businesses are showing a consistently strong interest in research anddevelopment (R&D). Corporate R&D spending increased by approximately12% in 1999, with corporate executives claiming that such increases are likelyfor 2000 as well. By contrast, government-sponsored R&D is expected to bevirtually stagnant, something that President Bill Clinton wants to remedythrough the establishment of new federal research programmes. The presidentdefends his objective with repeated reference to the government-fundedHuman Genome project, which is on the verge of successfully mapping theentire human DNA structure. The general public, however, appears wary ofgovernment-funded research, especially given the recent failures of theNational Aeronautics and Space Administration (NASA).

Some components ofinvestment are weak—

—but investment in hightechnology is booming

—and federal spending



Real imports rose at an annualised rate of 10.6% in the fourth quarter of 1999against only 6.9% for exports. The gap between exports and imports rosesignificantly during each quarter of 1999 essentially because US domesticdemand growth so greatly exceeded demand growth in its principal tradingpartners. Steady increases in the trade gap reduced the reported rate of GDPgrowth in the fourth quarter of 1999 and the total reported growth rate for1999. In this sense, the deterioration in net exports served to understate thetrue strength of the US economy.

Employment, wages and prices

Total non-agricultural employment grew by 2.2% in 1999, in line with its rateof increase during the current economic expansion. For several years there hasbeen widespread concern that the pool of potential workers will either fail tomeet demand entirely, meet demand only with exceptional wage increases ormeet demand only by attracting hitherto unemployable workers into thelabour force. Although employment and the labour force continue to growquickly, none of these concerns appears to have materialised to anydebilitating degree. However, the unemployment rate for those with less than ahigh-school diploma (who have the greatest difficulty finding jobs) fell during1999 to stand at 6% in January. The number of people employed part-timebecause they could not find full-time work also fell significantly during 1999,as did the number of self-employed workers, presumably that element of theself-employed labour force that prefers conventional employment.

Non-agricultural employment(m unless otherwise stated; seasonally adjusted)

1999 2000 Jul Aug Sep Oct Nov Dec Jan

Goods producing 25.25 25.15 25.19 25.20 25.26 25.28 25.41

Service producing 103.57 103.80 103.86 104.13 104.33 104.63 104.89

Total 128.82 128.95 129.05 129.33 129.59 129.91 130.29

Change in monthly employment, ‘000 373 129 103 284 257 316 387

Unemployment rate (%) 4.3 4.2 4.2 4.1 4.1 4.1 4.0

Participation rate (%) 67.0 66.9 66.9 67.0 67.0 67.1 67.5

Source: Bureau of Labour Statistics.

The current economic expansion has brought disproportionate benefit to thoseoccupational groups that are at the upper end of the labour market.Employment in the managerial and professional category rose by 2.6% during1999, while the number of those unemployed in that category fell by 28,000.Meanwhile, total employment for operators, fabricators and labourers fell by0.9% and the number of unemployed in precision production, craft and repairincreased by a remarkable 127,000. Manufacturing continued its long-rundecline as a provider of jobs with employment down by 1.8% in 1999. This isnot to say that displaced workers in these categories become long-termunemployed. In general, they do not. The rate of movement from the stagnant

Labour demand remainsexceptionally strong—

—especially forprofessionals—

Import growth continuesto outpace export growth



sectors of traditionally blue-collar employment to the white-collar growthsectors has tended to be exceptionally rapid.

Within the blue-collar element of the labour force, job losses have beengreatest in the industries that have recently shifted a large share of theirproduction overseas. This has been especially true of clothing and aircraftmanufacture. Within the white-collar element of the labour force, job gainshave been most dramatic in sophisticated professional services. Employment incomputer and data processing services and in engineering and managementservices rose by 8.8% and 7% respectively during 1999, in line with theirgrowth rates throughout the 1990s. Employment at securities and commoditybrokerages also grew rapidly during 1999, reflecting the strength of financialmarkets, in particular the stockmarket.

The inflow of highly skilled immigrant workers continues to increase, thoughnot by nearly as much as business interests would like. The federal governmenthas provided for 115,000 so-called H1-B visas (which cover highly skilledforeign workers with the right to work for a specific employer for a limitedterm) in 2000, the same as in 1999. That number is scheduled to drop to107,500 in 2001 and to 65,000 each year thereafter. Such a decrease, however, isdifficult to envisage in the light of the demand for skilled workers, particularlyin the high-tech sector. Congressional Republicans propose the New Workersfor Economic Growth Act, which would provide for 200,000 H1-B visasannually as well as unlimited entry for those with at least a master’s degree.

Total non-agricultural employment growth of 2.2% in 1999, combined withlabour force growth at a somewhat slower rate of 1.2%, pushed down theunemployment rate by 0.3 percentage points during the course of the year to a30-year low of 4.1% at the end of 1999. The unemployment rate fell further to4% in January 2000. Those who are unemployed, moreover, remain in thatstatus for ever shorter periods of time; the average duration of unemploymentfell from 13.5 weeks in January 1999 to 13.2 weeks in January 2000. Duringthat period the total number who were unemployed for less than five weeksincreased from 2.4m to 2.45m while the number who were unemployed formore than 27 weeks (the long-term unemployed) fell from 715,000 to 705,000.

A 30-year low in theunemployment rate—

—as blue-collaremployment diminishes

Pressure mounts for morehighly skilled immigrants



Despite an unemployment rate of 4% and annualised GDP growth above 5%,the inflation rate continues to show little sign of upward pressure. The coreconsumer price index (CPI) rose just 1.9% during 1999, to average 2.1% for theyear as a whole. This core figure excludes the volatile energy and food sectors,movements in which tend not to track overall inflation rates very closely.Exclusion of energy prices resulted in a core inflation-rate somewhat below theoverall CPI increase of 2.7% during 1999 because energy prices rosedramatically (by 13.2%) during the year directly as a result of OPEC-led priceincreases. However, the average rate of inflation for all consumer prices in1999, at 2.2%, was very similar to the core rate of inflation. Falling rates ofunemployment, combined with the absence of significant inflation pressure,are forcing economists to revise their estimates of the unemployment ratebelow which inflation necessarily begins to accelerate. As recently as five yearsago it was commonly reckoned that a US unemployment rate below about5.5% was certain to result in an accelerating rate of inflation.

Price inflation(seasonally adjusted unless otherwise indicated; % change year on year)


Consumer pricesa 2.1 2.3 2.6 2.6 2.6 2.7 2.7 Food & beverages 2.1 2.0 2.2 2.0 1.9 2.0 1.6 Housing 2.1 2.1 2.3 2.2 2.2 2.2 2.5 Apparel –1.9 –3.1 –1.4 –0.8 –1.1 –0.5 –0.5 Transportation 2.0 3.1 4.1 4.2 4.3 5.4 5.8 Medical care 3.5 3.4 3.5 3.4 3.6 3.7 3.6 Recreation 1.1 0.9 0.3 0.6 0.7 0.8 0.6 Education & communication 0.4 1.1 1.0 1.0 1.0 1.5 1.8 Energy 3.4 7.3 10.4 10.2 10.5 13.2 15.0 Core inflationb 2.0 1.9 2.1 2.1 2.2 1.9 2.0

Producer pricesc (finished goods) 1.5 2.3 3.2 2.7 3.2 3.0 2.5 Core producer pricesbc 1.3 1.3 1.7 1.9 1.8 0.9 0.8

a All urban consumers. b Excluding energy and food. c Not seasonally adjusted.Source: Bureau of Labour Statistics.

Average hourly earnings in private non-farm industries rose by 3.5% in 1999 orless than 1% in real terms. These modest real gains were distributed fairlyevenly across sectors and occupational groups. Notably large gains, however,accrued within the executive, administrative and managerial category (4.9%;2.2% real). The upper end of the labour market also enjoyed disproportionatejob growth during 1999. In part, comparative prosperity within professionalranks is due to the usual explanations such as the greater returns for educationand aptitude in an increasingly technology-driven economy. In part, though,the recent pay windfalls for professionals and managers are due to the fact thatincreased pay is the only obvious reward for those who already are at the top ofthe labour pool.

Despite job losses in manufacturing, average hourly wages in that sector roseby 3.5% during 1999, the same as the overall growth rate for wages across theeconomy. In this respect, manufacturing workers benefited from above-average

—has little apparent effecton inflation

—in most sectors

Real wages makemodest gains—



rates of unionisation. (Union leaders tend, on behalf of their members, tofavour wage increases over further hiring. Reductions in manufacturingemployment in recent years, moreover, have been effected largely throughattrition rather than through layoffs.) The most heavily unionised of manu-facturing industries have shown the starkest incongruity between wage growthand employment. The automobile sector enjoyed phenomenal 8.1% growth inwages during 1999 despite stagnation in job creation. Car workers now receive$19.13 per hour on average, second only to steel workers who are also likely tobe unionised. Apparel workers enjoyed 4.7% growth in hourly wages despitecontinuing contraction in US-based employment in that industry.

Hours worked and earnings(seasonally adjusted)


Weekly hours workedPrivate non-farm industries 34.5 34.5 34.4 34.5 34.5 34.5 34.6 Manufacturing 41.9 41.8 41.8 41.8 41.7 41.6 41.7

Average hourly earnings ($)Private non-farm industries 13.28 13.29 13.35 13.39 13.40 13.44 13.50 % change year on year 3.7 3.5 3.6 3.7 3.6 3.5 3.5Manufacturing 14.02 14.03 14.04 14.07 14.06 14.08 14.13 % change year on year 4.2 3.7 3.4 3.7 3.6 3.5 3.6Private non-farm industries (chain 1982 $) 7.88 7.87 7.86 7.87 7.87 7.87 7.89 % change on a year earlier 1.5 1.2 0.8 0.9 0.8 0.8 0.8Source: Bureau of Labour Statistics.

The number of unionised workers rose by 265,000 in 1999 to a total of 16.48m.The percentage of workers who are unionised, however, remained constant at13.9%. Last year was the first in two decades during which this proportion hasnot decreased. Workers in local government are the most likely to be unionised(42.9%) while private-sector workers in the finance sector are the least likely(2.1%). Manufacturing has an above-average 15.6% of its workers unionisedbut its unions are losing workers more rapidly than any other sector.

The ability of organised labour to expand its ranks in 1999 was almost entirely aresult of its targeting of immigrant workers. While labour unions tend to opposepotential increases in immigration, the landed immigrant is vigorouslyrecruited by unions. Organised labour, furthermore, has launched an attempt tolegalise the employment status of the estimated 6m established illegal im-migrants currently in the US (much as it succeeded in 1986 through an amnestyfor illegal immigrants). Mass legalisation of immigrants would provide potentialnew union members and, more significantly, would provide such immigrantswith substantial pay gains, thus rendering them less of a labour-market threat tohigh-wage unionised workers. There is significant opposition in Congress to theidea of another amnesty. The concern is that a reprise of the 1986 amnestymight suggest a willingness to effect such a measure regularly, something thatmight provide an unacceptable inducement to potential illegal immigrants.

Labour unions increasetheir membership—

—by targeting immigrants



Financial indicators

The stockmarket ended 1999 at an all-time high, fuelled by the booming eco-nomy and a wave of mega-mergers. The fact that equity prices continued torise in November and December as interest rates rose is partly explained by themassive increase in liquidity at the end of the year as the monetary authoritiestook precautions to ensure that the so-called millennium bug did not causeany economic disruption. With the subsequent withdrawal of liquidity by themonetary authorities in response to the minimal impact of the “bug”, and theprospect of more interest-rate increases to come, the stockmarket softened inJanuary. The “old economy” sectors have borne the brunt of the price fall, asinvestors continue to switch their portfolios into technology, telecommunica-tions and media stocks.

Financial markets(end-period)


Share price indicesDow Jones industrials 10,655.2 10,829.3 10,337.0 10,729.9 10,877.8 11,497.1 10,940.5 % change year on year 19.9 43.6 31.8 24.9 19.3 25.2 16.9S&P 500 composite 1,328.7 1,320.4 1,282.7 1,362.9 1,388.9 1,469.2 1,394.5 % change year on year 18.6 37.9 26.1 24.0 19.4 19.5 9.0NASDAQ composite 2,638.5 2,739.4 2,746.2 2,966.4 3,336.2 4,069.3 3,940.4NYSE composite 626.1 612.3 592.8 625.5 631.2 650.3 621.8

Government bond yields (%)3-month Treasury bill 4.8 5.0 4.9 5.1 5.3 5.3 5.610-year Treasury bond 5.9 6.0 5.9 6.0 6.2 6.5 6.730-year Treasury bond 6.1 6.1 6.1 6.2 6.3 6.5 6.5Source: Haver Analytics.

The three major loan categories—consumer, commercial and industrial, andreal estate—each grew by more than a 10% real, annualised rate in the fourthquarter of 1999. Consumer loan demand has been strong given real wageincreases at about 1% during the past year. Demand for business loans hasbeen bolstered by the desire to maintain reasonable rates of capital investment

Strong loan growth in thefourth quarter of 1999—

The stockmarket falls backfrom its all-time high



in the face of modest profit growth during 1999. Demand for real-estate loanshas been boosted by favourable demographic trends. More surprising, perhaps,is the willingness of lenders to permit loan growth at a double-digit annualisedrate in the fourth quarter. Consumer debt burdens remain near record levels.The default rate on commercial and industrial portfolios has climbed quitesteadily during the past two years. Even real-estate loans have experiencedslightly decreased credit quality in recent quarters.

The pace of bank loan growth has begun to precipitate cautionary directivesfrom the major bank regulators: the Federal Reserve, the Office of theComptroller of the Currency and the Federal Deposit Insurance Corporation.All are concerned about the rising rate of default on business loans and aboutthe apparent willingness of lenders to relinquish some of the loan-quality gainson their consumer portfolios. The sharp increase in consumer lending in thefourth quarter of 1999 was almost enough to negate the apparently prudentcontraction of the first three quarters. The banking industry, during the firstthree quarters, had seemed committed to long-term contraction in consumerdebt-balances sufficient to reduce bad debt volumes and bankruptcy rates totheir long-term averages. While personal bankruptcy rates have declinedduring 1999, this favourable trajectory does appear threatened by lenders’renewed laxity.

Commercial banks currently face legal action in a number of jurisdictions overthe issue of charges applied to automated teller machine (ATM) transactions. Atpresent banks tend to charge between $1 and $2 for each withdrawal by anindividual who is not a customer of the bank that owns the ATM. At present,such charges generate about $5bn of the industry’s $65bn in annual profits.The banks’ position, essentially, is that surcharges constitute a legitimate levyfor the convenience gained by bank customers. The anti-surcharge positionrelies on the argument that bank costs are not a function of whether the ATMcustomer is making a withdrawal at his or her home bank. Thus, according tothis argument, the surcharge constitutes a form of exploitation. Earlyindications are that the judicial system is supporting the banks’ position.

Sectoral trends

The federal government has sponsored a bail-out of the farming sector whichincluded $8.15bn in direct cash payments in 1999 alone. There is broad publicsupport for this initiative given the high esteem in which farming families areheld by most Americans and the suffering borne by such families very recently.Farm sector bankruptcies are likely to have reached a record in 1999, despite asharp drop in consumer bankruptcies generally. Net farm income appeared tobe about $45bn for 1999, down from $48bn in 1998, $50bn in 1997 and$53bn in 1996.

The government bail-out, however, appears to favour large-scale agribusinessconcerns more than family farmers whose plight is emphasised in thejustification for federal assistance. The Environmental Working Group, a left-

—is a concern forregulators

Bank charges areunder attack

Federal aid to agriculture—

—is found to favour large-scale agribusiness



leaning Washington think tank, found that nearly half of the farm subsidiesdistributed between 1996 and 1998 was received by only 12% of farmers andthat these tended to be agribusiness concerns. Regressiveness in the bail-outprogramme, argue the programme’s detractors, is achieved not through case-by-case discrimination but through the types of farms targeted. It is argued, forexample, that the federal programme favours farmers of wheat, cotton,soybeans and dairy products, sub-sectors in which agribusiness predominates.During the one-year period ended in November 1999, the number of self-employed workers in agriculture fell by a massive 8.3%. Meanwhile, thenumber of salaried workers rose by 3.3%. (The latter tend to be employed byagribusiness while the former tend to be family farmers.)

Although mortgage interest rates increased during 1999, the housing sectorcontinued to perform phenomenally well. During each of the five years since1995, including 1999, the average price of a single-family house increased byabout 4%, one to two percentage points above the typical rate of inflation overthat five-year span. During the same period the average time from initial listingto final sale has fallen from 4.3 months to 3.3 months. The housing sectorboom is driven largely by favourable demographic trends (in addition togeneral economic prosperity, of course): members of the baby boom, nowtypically in their 40s, are tending to sell starter homes in favour of more expen-sive homes.

While the merger wave has affected all sectors of the economy significantly, ithas transformed communications. Until 1999 this largely took the form ofconsolidation under the terms of the 1996 telecommunications deregulationlegislation, in particular the merger of regional phone companies. Veryrecently, however, consolidation also has taken the form of mergers involvingso-called old technology companies and Internet companies. The largest ofthese is the planned merger of America Online (AOL) and a multi-mediaconglomerate, Time Warner, in an all-stock deal initially valued at $131bn.During the first two days after the deal was announced, however, the aggregatevalue of the companies fell by $24bn, or 18.3%. Executives of more traditionaltelecoms companies who have made recent acquisitions of Internet-relatedcompanies have often been accused of faddishness or at least of being willingto make such a major acquisition without having any strong reason to expectsynergy. The management of VIACOM, the communications giant whichrecently acquired the CBS television network, has explicitly stated its warinessof acquiring an Internet company.

Consolidation has also occurred without merger. For example, Bell Atlantic hasbecome the first of the former Baby Bells (regional phone companies) to beallowed into the long-distance telephone market. It will operate in New Yorkstate in the first instance. Under the terms of 1996 telecoms deregulation, BabyBells were only to be allowed into long-distance phone markets once regulatorshad been convinced that their own regional phone market had becomesufficiently accessible to the long-distance companies. SBC Communications,another former Baby Bell, is likely to enter the long-distance market in Texassoon. Similar action is expected to follow across the US, but probably not en

Housing had a record yearin 1999

Internet companiesspark mergers

Consolidation intelecoms continues



masse as regulators will want to monitor the freedom of long-distancecompanies to enter local markets on an ongoing basis.

The Federal Trade Commission (FTC) has indicated that it may attempt toblock the proposed $26.8bn takeover of a US oil company, Arco, by UK-basedBP Amoco. (The latter was itself created by the recent acquisition of thepreviously-American Amoco by BP.) The FTC’s reservation over the proposeddeal appears incongruous with its approval last year of the merger betweenExxon and Mobil (at the time the two largest US oil companies) as well as itslaxity on oil industry mergers in general. Five years ago about half of the retailfuel market in the US was controlled by eight companies rather than by thefour that control that proportion now. It is possible that the FTC’s concern isrelated to the foreign ownership of BP Amoco. The oil industry is consideredstrategic for the purposes of US national security; further ownership of theindustry by a foreign parent may have raised concerns. This is a sensitivesubject, one on which the federal government would be reluctant to assume apublicly xenophobic stand. A related, but less provocative, explanation for theFTC’s reticence may be that a transatlantic deal would be expected to providelittle benefit to US oil. Much of the FTC’s willingness to permit horizontalmerger within the oil sector followed from the desire to assist the strugglingsector; to the extent that a merger between a British oil major and an Americanone would provide less potential benefit to the US oil industry than would apurely domestic merger, the FTC’s usual concerns about horizontal mergerwould become comparatively more potent.

If the FTC does reject BP Amoco’s bid, the precedent may mark the start of aslowdown in the current wave of foreign direct investment (FDI). The annualflow of FDI, or controlling investment, has built quite steadily during the1990s. About 90% of the inflow, moreover, is effected through internationalmerger rather than start-up. Of this, moreover, an increasing proportion hascome in the form of merger between very large companies such as thoseinvolved in the pending oil industry deal.

Foreign trade and payments

The trade deficit in goods (on a balance-of-payments basis) rose strikingly inthe first three quarters of 1999 to reach a record $92.1bn in the third quarter.Real exports of goods (on a national accounts basis) rose by 3.8% in 1999 andreal imports by 12.7%. This combination suggests that the explanation forgrowth of the trade deficit in 1999 is strong demand in the US than deficientdemand abroad. Since the services surplus is fairly steady at under $20bn aquarter and the combined deficit on investment income and transfers isaround $15bn-16bn a quarter, the current-account deficit is tracking the tradedeficit but at a slightly lower level. The current-account deficit for the first ninemonths of 1999 amounted to almost $240bn, and the full-year figure isestimated at $333bn.

The merger binge in the oilindustry suffers a setback—

The current-account deficitis widening rapidly—

—with a potentiallynegative impact on FDI



Balance of payments($ bn; seasonally adjusted)

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Goods: exports fob 170.7 165.2 164.3 170.1 164.3 165.9 173.6

Goods: imports fob 225.5 228.7 229.2 233.7 238.5 250.3 265.8

Trade balance –54.9 –63.5 –65.0 –63.6 –74.2 –84.4 –92.1

Services: credits 65.2 66.7 65.0 66.8 67.6 68.7 69.0

Services: debits –43.6 –45.2 –45.8 –46.5 –47.4 –49.3 –50.7

Services balance 21.5 21.5 19.2 20.3 20.2 19.3 18.3

Income receipts on US investments abroad 66.5 66.6 62.2 63.1 64.0 66.9 69.6

Income payments on foreign investments in the US –66.2 –67.1 –69.2 –68.0 –68.4 –71.5 –74.5

Investment income balance 0.3 –0.6 –7.0 –4.9 –4.3 –4.6 –4.9

Net transfers –9.9 –9.9 –10.8 –13.5 –10.3 –11.2 –11.2

Current-account balance –43.1 –52.4 –63.5 –61.7 –68.7 –80.9 –89.9

US assets abroad –59.6 –120.5 –62.1 –50.6 –15.1 –154.7 –101.5

Foreign assets in the US 96.8 162.5 93.5 149.8 88.9 274.3 207.2

Capital-account balance 37.2 41.9 31.5 99.2 73.7 119.6 105.7

Statistical discrepancy 5.7 10.3 31.9 –37.7 –5.2 –38.8 –15.9

Source: Department of Commerce.

The monthly trade deficit of goods and services continued to reach new highsin the closing months of 1999 as import growth far exceeded export growth.Although the trade deficit fell back slightly in December from November’s all-time high, it climbed to $271bn for the year as a whole, up from $164bn in1998. All major categories of imports recorded increases in 1999, with thelargest rises registered for automobiles (20.4%), consumer goods (10.7%),industrial supplies (10.7%) and capital goods (10.1%). The strong growth incapital goods reflects strong business investment, especially in computers andcomputer-related products. The fastest-growing category of exports in 1999, at3.7%, was capital goods.

International trade in goods and services, 1999

($ bn net; seasonally adjusted; balance-of-payments basis)

Jul Aug Sep Oct Nov Dec

Goods –31.5 –30.2 –30.3 –31.9 –32.9 –31.5

Services 6.1 6.2 6.1 6.3 5.8 5.9

Total –25.4 –24.0 –24.2 –25.6 –27.1 –25.5


President Bill Clinton continues to spearhead the campaign to have Chinaadmitted to the World Trade Organisation (WTO). Ostensibly, this matters tothe US because China’s bilateral trade deficit with the US is very large ($69bnin 1999, slightly smaller than the $74bn deficit with Japan). The bid to haveChina enter the WTO has broad support. All the major presidential candidates,for example, actively back the idea. Apparent evidence of Mr Clinton’squestionable ties to China, however, has made some members of Congress

Mr Clinton continues topress for China’s entry to

the WTO

—driven by a recordtrade deficit



suspicious of the president’s motives in backing China’s bid so vigorously. TheRepublican-controlled Congress remains reluctant to give its formal assentduring Mr Clinton’s term in office, while some Democrats are worried aboutthe impact of freer competition from China on US jobs. China is likely toreceive formal US backing upon the accession to office of the next president,early in 2001, and will enter the WTO shortly thereafter.

Trade balance by area, 1999

($ bn; not seasonally adjusted; census basis)

Jul Aug Sep Oct Nov Dec

Japan –6.8 –6.4 –6.6 –7.2 –6.4 –7.0

China –6.3 –6.9 –6.9 –7.2 –6.5 –5.6

EU –6.1 –4.1 –3.5 –4.5 –5.3 –3.9

Canada –3.1 –3.3 –2.9 –2.9 –3.0 –3.4

Mexico –2.1 –2.2 –2.2 –1.4 –1.7 –0.9


Having found little active interest by the Clinton administration in measuresthat would protect the US steel industry from inexpensive imports, industryrepresentatives have turned to the courts. There, during the latter months of1999, they achieved significant success. The industry employed sophisticatedmethods, for example the use of detectives to uncover the details of businessrelationships between foreign steelmakers and their US customers, to demon-strate that steel had been dumped in the US (sold at prices in the US signi-ficantly below prevailing prices in the seller’s home market). Court actionappears to have been instrumental in helping to slow the value of steel importsfrom $25.6bn in the first nine months of 1998 to $19.8bn in the same period of1999. US steelmakers have also benefited from rising demand for their outputby domestic automobile, construction and appliance companies. It is expectedthat the steel industry will enjoy a comparatively prosperous 2000, andemployment will begin to increase. During the past two and a half years USsteelmakers have reduced employment by about 9,000 or about 5% of the total.

The Clinton administration plans to make $1.3bn in aid available to Colombiaduring the next two years. (This sum supplements the $300m per year whichalready had been earmarked.) Almost all of this aid is to be applied directly toColombia’s anti-narcotics programmes. The largest single expenditure is to bethat associated with the purchase of 63 anti-drug helicopters. The aid toColombia is consistent with US foreign aid policy during the 1990s whichexplicitly favours those projects that are consistent with US politicalinterests abroad.

The US will increase aidto Colombia

The steel industry is solvingits trade-related problems



Trade data

Foreign tradea

($ m)

Total Canada Japan Mexico EU Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998

Food, drink & tobacco 42,852 44,311 8,461 8,857 423 415 4,883 5,446 7,808 8,360 of which: meat 2,366 2,544 1,091 1,150 1 1 8 8 155 157 fish 6,839 7,093 1,141 1,220 189 176 468 464 87 112 meat & fish preparations 1,694 1,903 278 302 26 21 38 33 145 134 fruit, vegetables & preps 8,838 9,539 741 911 40 40 2,307 2,819 867 908 coffee, tea, cocoa & spices 5,964 5,747 366 441 4 4 710 546 530 510Pulp 2,776 2,579 2,330 2,096 0 0 5 6 38 40Ores, slag & ash 2,053 2,268 467 467 6 7 101 122 53 87Mineral fuels 82,682 62,267 18,489 15,164 277 276 8,747 5,546 4,224 3,396Chemicalsb 59,333 64,186 11,335 11,513 6,629 6,614 2,081 2,151 23,570 27,739Wood & manufactures 13,561 14,018 9,828 10,019 9 10 453 418 501 593Paper & manufactures 12,425 13,554 8,538 9,016 387 425 375 441 2,103 2,288Textile fibres, yarn, cloth & mnfrs 10,390 14,049 1,522 1,665 624 615 1,210 1,278 2,621 2,696Non-metallic mineral mnfrsc 27,392 32,574 3,467 3,587 1,313 1,258 1,503 1,808 7,716 8,558Iron & steel & mnfrsd 25,731 30,054 4,996 5,305 2,845 4,322 2,285 2,341 6,040 6,133Non-ferrous metals & mnfrs 16,302 15,902 7,024 6,470 628 643 1,016 1,170 2,446 2,242Tools etc & miscellaneous metal mnfrs 7,363 8,037 1,036 1,206 1,230 1,134 526 624 1,514 1,669Machinery excl electric 146,856 157,141 14,912 16,286 33,235 32,046 10,063 11,715 35,490 39,751Electric machinery 124,011 129,111 9,161 9,848 25,070 23,451 21,959 25,868 11,406 12,221Road vehicles & tractors 116,813 126,112 44,759 46,713 31,896 33,798 15,511 16,954 18,905 22,714Other transport equipment 12,155 16,475 4,111 5,237 1,338 1,593 191 370 5,215 7,192Furniture, lighting, prefab fixtures 14,867 17,767 3,762 4,403 157 199 2,258 2,721 1,908 2,278Clothing & footwear 61,886 67,044 1,367 1,569 97 89 5,734 7,158 4,333 4,477Scientific instruments etc 32,436 34,696 1,806 1,966 10,127 9,548 2,771 3,600 9,075 9,730Total incl others 898,026 944,350 171,331 177,916 124,266 125,090 87,120 96,075 162,538 182,031

continued



Total Canada Mexico Japan EU Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Domestic exports fob 1997 1998 1997 1998 1997 1998 1997 1998 1997 1998

Food, drink & tobacco 47,778 44,530 6,237 6,556 3,107 3,857 11,309 9,954 7,049 6,697 of which: meat 6,338 5,890 503 484 696 821 2,434 2,283 133 142 cereals & preparations 13,140 11,989 888 957 1,054 1,489 3,042 2,352 736 646 fruit, vegetables & preps 7,384 7,260 2,122 2,169 297 422 1,361 1,275 1,453 1,470 animal feeding stuffs 4,446 3,891 568 560 207 245 406 330 1,448 1,111 tobacco & manufactures 6,510 6,286 29 27 23 11 1,809 1,869 1,947 1,946Oilseeds 8,845 6,319 283 219 1,059 923 1,504 1,224 2,595 1,890Pulp 3,866 3,435 308 310 392 372 522 442 1,280 1,178Wood & manufactures 7,095 5,782 1,578 1,538 291 366 2,438 1,586 1,448 1,273Mineral fuels 12,356 9,979 2,286 2,358 1,991 1,774 900 717 2,484 1,811Chemicalsb 75,042 74,165 14,265 15,053 7,924 8,769 6,681 5,702 15,938 19,532 of which: organic 17,539 16,471 2,041 2,000 1,476 1,402 1,492 1,231 5,437 5,896 medicinal & pharmaceutica products 6,224 7,425 1,102 1,332 146 170 566 563 2,999 3,541 plastics & manufactures 22,530 22,276 5,534 5,832 4,287 4,901 1,253 1,045 3,902 3,961Paper & manufactures 10,613 10,274 2,915 3,057 1,625 1,838 749 666 1,394 1,371Textile fibres, yarns, fabrics & mnfrs 12,916 12,585 2,796 2,935 1,965 2,667 623 548 1,881 1,740Non-metallic mineral mnfrsc 13,547 12,949 2,635 2,648 681 880 836 654 3,605 4,484Iron & steel & mnfrsd 12,786 12,222 4,916 5,108 2,616 2,692 390 306 1,140 1,211Non-ferrous metals & mnfrsd 9,661 9,143 2,957 2,847 1,364 1,617 832 659 1,489 1,576Tools etc & miscellaneous metal mnfrs 4,994 4,975 2,014 2,012 726 796 170 147 843 904Machinery excl electric 129,840 125,585 26,521 27,712 9,469 10,394 9,608 7,793 32,940 34,244Electric machinery 96,219 94,231 14,928 15,229 16,380 17,126 7,433 6,905 14,002 14,935Road vehicles & tractors 58,307 55,917 30,630 30,060 7,326 7,680 3,219 2,605 6,485 6,871Aircraft 39,606 51,404 1,448 1,670 214 574 4,259 5,215 12,242 15,875Clothing & footwear 8,788 8,884 664 689 2,268 2,646 741 520 567 460Scientific instruments etc 35,977 36,347 4,862 5,166 2,220 2,450 5,392 5,050 11,627 12,635Furniture, lighting, prefab fixtures 5,276 5,620 1,975 2,194 919 1,095 465 446 523 590Total incl others 643,179 634,674 134,792 137,766 68,370 75,356 62,089 54,845 132,346 140,556

a Including non-monetary gold. b Including crude fertilisers and manufactures of plastics. c Including precious metals & jewellery. d Includingscrap.Source: UN, External Trade Statistics, series D.



Structure of tradea

($ m)

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Nov Jan-NovImports customs 1994 1995 1996 1997 1998 1998 1999

Meat & preparations 2,627 2,322 2,316 2,656 2,847 2,598 2,970Fish & preparations 6,590 6,739 6,657 7,687 8,105 7,365 8,050Fruit & vegetables & preparations 6,075 6,581 7,512 7,752 8,372 7,556 8,435Wood & pulp 8,995 9,976 10,185 10,818 10,068 9,296 10,564Metalliferous ores & scrap 3,262 4,004 4,034 4,156 4,101 3,766 3,310Crude oil 38,479 42,814 54,931 54,226 37,534 34,884 44,980Petroleum products 10,270 9,096 14,004 13,904 10,904 10,199 12,866Gas 3,937 3,182 4,564 5,477 5,338 4,808 5,570Chemicals 33,907 40,392 44,872 50,348 54,621 50,253 56,874Paper & manufactures 9,066 12,470 11,629 11,697 12,796 11,742 12,289Textile yarn, cloth & manufactures 9,207 9,980 10,255 11,951 12,890 11,869 12,455Diamonds 5,756 5,951 6,600 7,595 8,489 8,001 9,142Iron & steel mill products 12,896 12,279 13,383 14,285 17,161 15,981 12,174Aluminium & copper 7,238 8,803 7,794 8,812 9,025 8,364 8,928Metal manufactures 8,847 10,010 10,842 12,242 13,505 12,375 13,205Machinery incl electric 204,428 241,727 249,247 271,563 286,506 262,164 286,960 of which: office 52,058 62,703 66,474 74,993 76,846 69,744 76,690 electrical 57,750 75,051 75,488 80,370 79,366 72,941 80,411Road vehicles & parts 91,892 100,479 102,551 112,926 121,310 108,013 132,674Aircraft & parts 6,446 6,436 7,645 9,713 12,980 12,000 13,636Furniture 7,565 8,338 9,432 11,144 13,338 12,127 14,780Clothing & footwear 48,460 51,621 54,310 62,434 67,622 62,579 64,978Scientific instruments etc 19,097 21,659 22,804 25,059 27,095 24,802 27,300Total incl others 663,256 743,445 795,289 870,671 913,828 835,889 933,733

continued



Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Nov Jan-NovDomestic exports fas 1994 1995 1996 1997 1998 1998 1999

Meat & preparations 5,195 6,456 6,967 6,885 6,411 5,923 5,760Maize & wheat 8,252 12,985 14,921 9,622 8,329 7,448 7,997Fruit & vegetables & preparations 6,757 7,098 7,324 7,472 7,321 6,719 6,532Animal feeding stuffs 3,353 3,667 4,188 4,621 4,050 3,742 3,025Tobacco & cigarettes 6,269 6,167 6,134 5,965 5,625 5,213 4,221Soybeans 4,355 5,422 7,447 7,479 4,878 4,335 4,001Wood & pulp 9,366 11,843 9,550 9,014 7,528 6,916 7,058Metalliferous ores & scrap 3,713 5,564 4,276 4,662 3,592 3,262 3,174Coal 2,966 3,714 3,856 3,586 3,191 2,945 2,110Petroleum products 3,167 3,244 3,952 3,899 2,855 2,628 2,926Chemicals 51,664 60,809 61,961 69,483 68,040 62,341 64,526 of which: organic 12,789 16,106 14,809 16,408 14,903 13,698 14,015 plastics 12,485 14,958 15,464 17,274 16,616 15,314 15,385Paper & manufactures 7,448 9,572 9,853 10,283 9,914 9,198 9,045Textile yarn, cloth & manufactures 6,445 7,192 7,837 8,975 8,973 8,343 8,540Iron & steel mill products 3,554 5,349 4,805 5,637 5,475 5,072 4,565Aluminium & copper 4,053 5,503 5,080 5,209 4,875 4,503 4,286Metal manufactures 7,034 8,060 9,216 10,309 10,657 9,865 10,170Machinery incl electric 156,926 182,741 196,807 226,295 220,757 202,202 208,800 of which: electrical 44,454 53,139 57,189 65,816 65,412 59,984 68,014Road vehicles & parts 43,460 48,233 50,181 55,669 53,398 49,466 49,280Aircraft & parts 28,627 24,840 31,319 39,812 51,386 45,274 43,096Clothing & footwear 6,107 7,153 8,062 9,196 9,228 8,579 8,079Scientific instruments etc 20,732 23,328 26,050 29,911 29,838 27,322 28,756Non-monetary gold 5,689 5,055 6,641 5,673 5,393 5,217 4,438Total incl othersb 512,626 584,742 625,075 689,182 682,977 623,376 631,585

a Including non-monetary gold. b Including re-exports.Source: US Department of Commerce News, census basis.

Direction of trade($ m)

Jan-Dec Jan-Dec Jan-Nov Jan-Nov Jan-Dec Jan-Dec Jan-Nov Jan-NovTotal exports fas 1997 1998 1998 1999 Imports cif 1997 1998 1998 1999

Canada 151,767 156,308 143,940 152,283 Canada 171,589 178,048 161,744 184,194Mexico 71,388 79,010 72,287 78,287 Japan 123,577 125,091 114,207 122,436Japan 65,549 57,888 53,176 52,337 Mexico 87,233 96,078 88,108 101,518UK 36,425 39,070 36,153 35,274 China 65,837 75,109 69,468 80,561Germany 24,458 26,642 24,199 24,401 Germany 44,246 51,283 46,231 51,374South Korea 25,046 16,538 14,102 20,630 UK 33,525 35,721 32,667 36,595France 15,965 17,728 16,004 16,912 Taiwan 33,723 34,343 31,409 33,356Total incl others 689,182 682,977 623,376 631,585 Total incl others 899,119 944,586 864,063 965,518

Source: US Department of Commerce News, census basis.

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