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The U.S. Economy in 2004
Kristin J. Forbes, Member
The White House Council of Economic Advisers
The turnaround in business investment and export growth,  combined with increased consumer spending, is evidence of the nation’s sustainable economic recovery. That was the report of Kristin Forbes, a member of the White House Council of Economic Advisors. Her presentation to NCPERS was a preview of testimony she delivered to Congress later that day.
Reviewing several key economic indicators, Forbes noted first that in recent years consumer spending has been the engine of growth in the U.S. It increased to 7.4% in the last quarter of 2003. She also noted that housing starts rose when mortgage rates fell, as well as when they rose slightly in recent months.
Forbes suggested that tax relief legislation implemented in 2003 contributed to the recovery. She predicted that consumer spending will fade as the effects of the tax relief decline.
GDP (Gross Domestic Product) growth in the fourth quarter of 2003 reflected more than an increase in consumer spending, according to Forbes. Business investments and exports also were up significantly, contrary to the usual trend in recessions, while corporate profits also rose. Exports plunged during the height of the recession, but increased significantly in 2003—almost 20% in the fourth quarter, the highest in recent years.
Forbes admitted that employment problems continue. Employment among startups and other small businesses has increased, while employment in large-scale businesses has only recently begun to increase. Forbes suggested that the employment outlook for manufacturing and nonmanufacturing sectors suggests increases in hiring will occur during the second half of 2005. She also said that increases in productivity growth, which was higher in the past three years than any other three-year period in the last 30 years, may be one reason for the slow recovery in employment.
Overall, Forbes said her outlook on the economy was cautiously optimistic. Concerns persist about the deficit, which is 4.5% of GDP. Other factors that could harm the recovery include the breakdown of bilateral trade negotiations with several nations.
Forbes has been a member of the President’s Council of Economic Advisers since May 2003. During 2001-2002, Dr. Forbes worked in the U.S. Treasury Department as the Deputy Assistant Secretary of Quantitative Policy Analysis, Latin American and Caribbean Nations.
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