B. Will the Economy Falter? Essay

The U. S. is now in its fifth straight year of economic growth. (There was a brief recession back in 2001. ) It has been observed over the last 60 years economic that recoveries on average last only five years. Once the five-year mark is reached, an economy typically runs into trouble. Cracks and strains start to appear. Inflation pressures build, interest rates move higher, housing weakens and business inventories begin to swell. On the media pundits utter the â€Å"R† word (recession) more frequently at this juncture. So the obvious question is: If the present recovery is five years old, is this economy now in jeopardy? The answer, fortunately, is no. Some sectors, like housing, are showing signs of tiring. Even the pace of job creation has been slowing the last four months. However, when diagnosing the health of an economy, it is vital to differentiate between an economy that is merely slowing to a more moderate and sustainable pace — from one where fundamentals have so deteriorated that a recession is all but inevitable. All evidence this time points to the former, namely that the economy remains in sound health with the business cycle far from over. The economy has indeed performed very well so far in 2006. Growth surged an estimated 4. 5% annual pace in the first half — despite high energy prices and rising interest rates. Inflation, though slightly higher than what the Federal Reserve prefers, is still quite benign. Companies continue to focus on operating more efficiently and raising productivity levels. Job creation, which has been disappointing recently, is still running at an average of nearly 150,000 a month, very near the level of 165,000 per month seen in 2005. S&P 500 earnings are expected to increase by 11% in the second quarter, after a 15% jump in the first three months (Baumohl).