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Bush's New Economy

The president's second term carries opportunities and perils.

11:00 PM, Jan 24, 2005 • By IRWIN M. STELZER
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But this gloomy outlook doesn't reckon with some underlying strengths. Economists at Goldman Sachs report that "U.S. capital spending has been on a tear since the spring of 2003 . . . [and will] remain strong in 2005, rising an additional 8 percent or so." Orders for factory goods are rising rapidly, and the service sector is racking up impressive gains. The economy added 2.23 million jobs last year, the largest gain since 1999, contributing to a jump in consumer confidence. More houses were built in 2004 than in any year since 1978, and the momentum seems to be carrying into 2005. The falling dollar, despite its recent bounce-back, has begun to make itself felt: manufacturers report a sharp rise in exports. Foreign investments in U.S. assets are covering the trade deficit, and then some: In November inflows of $81 billion exceeded the deficit by over $20 billion. As for inflation, a continuation of the Fed's interest rate increases, combined with the absence of wage inflation, should continue to hold price increases, which have been nil in recent months, to tolerable levels.

Not a bad way to start a new presidential term.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.