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National Economy in Great Shape, Gaining Strength, UNC Expert Says

The U.S. economy is well on its way to posting a growth rate in real gross domestic product in 2004 higher than in any other year since 1984, a UNC business expert says.

“Real GDP growth should average 4.2 percent a year or so from 2005 through 2008,” said James F. Smith, professor of finance at UNC’s Kenan-Flagler Business School. Real GDP is the total value of all goods and services produced for final demand within the borders of the United States after adjusting for price changes. This year, Smith predicts, real GDP growth will be at least 5 percent and could easily exceed 6 percent.

‘”If this forecast turns out to be close to the mark, then 2004-08 will be the best five-year growth period for the U.S. economy since 1962-66. That was the last time we had real GDP growth above 3.8 percent for five years in a row.”

Smith, rated by The Wall Street Journal as the nation’s most accurate economic forecaster in three of the past nine years, made his remarks in the most recent issue of the Business Forecast, a newsletter he writes for the business school.

Corporate profits after taxes are at the highest levels in relation to GDP since 1929 and have been there for some time, he said. The small-business optimism index has been above 100 for the longest period since 1983 and is at its highest level (105.4 in April) since then.

Total employment is at record levels, and nonfarm payroll jobs, which had been the only lagging indicator of employment trends, have increased strongly this year, Smith said. Total nonfarm payroll employment was 131,224,000 jobs in May, up 1,799,000 jobs or 1.4 percent since December. The Institute of Supply Management’s Index of Manufacturing, one of the best leading indicators of both real GDP growth and industrial production, has been above 60 for six months in a row. That has not happened since 1978.


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