There is no question that the powerful run-up in stock prices has been one of the forces fueling consumer spending. In just 3.5 years, net worth has increased by nearly 50 percent or almost 11.5 percent a year. With corporate earnings under pressure it seems unlikely the stock market will be able to deliver the total returns it has produced over the past four years. If the stock market were to suffer a prolonged decline and investors begin to take funds out of the market, the effect on spending would be even more pronounced. T-Bill rates are bond equivalent yield.
All figures are quarterly or yearly averages, rounded to one decimal point.
The economy is beginning 1999 with a great deal of momentum. Real GDP growth increased by a very strong 5.6 percent in the fourth quarter. I see GDP growth slowing to 2.5 to 3.0 percent this year. Job growth in December was much stronger than expected, increasing by 378,000 for the month. Nevertheless, I expect growth will slow, as 1999 progresses.