The mild deflationary forces of the 1990s have proved a good backdrop for American companies. True, most have found it difficult to raise prices, but they have more than made up for that with higher sales volumes and tight cost control. Most important, the lack of inflation has kept higher interest rates at bay. That kind environment could now be breaking apart. The domestic economy is showing the early signs of incipient inflation.
Wage rates are on the rise again and healthcare costs are climbing.
The contrary forces in the U.S. and the global economies may have combined to keep U.S. interest rates low. Whether this is a pause or a more lasting slowdown will only become apparent late this year when the full effects of Asia's economic crisis feed through. It does not necessarily follow that American companies are about to be knocked from their pedestal. There have undoubtedly been structural factors, as well as cyclical ones, behind the resurgence of the 1990s. One has been the success of American companies in some of the fastest-growing, and most profitable, global industries, such as technology, finance and pharmaceuticals.