The Outlook: Expansion's Strength Holds Lesson for Seers
NEW YORK -- Seldom has the economy so confounded forecasters. Who could possibly have imagined a year ago that overall business activity -- notwithstanding an unprecedented crash in the stock market -- would remain briskly on the rise in mid-1988? Who could have guessed that the expansion would be rolling relentlessly through a sixth straight year, with no end in sight?</br></br>Economists who failed to anticipate this durability may be tempted to despair, sensing that imponderables so overhang the business scene nowadays that forecasting has grown too hazardous an occupation. Indeed, they may be moved to seek safer work, like wrestling with alligators instead of numbers.</br></br>Before anyone sets out for the Everglades, however, it may be worth taking a retrospective look at the economy's recent behavior, for it's not as perplexing as one might suppose from all the tarnished forecasting records.</br></br>Expansion phases of the business cycle normally end only after a rising economy begins to bump against constraints to further growth. These constraints may be physical, as when labor or productive capacity proves insufficient to meet demand, or they may be financial, as when credit is too costly or simply unavailable.</br></br>This basic characteristic of the business cycle tended to be overlooked in the widespread concern last year, particularly after the October market crash, that a recession would soon set in, possibly by the start of 1988.