WASHINGTON (FNS) -- Like an athlete at the top of his game, the American economy continues to astound consumers and industry analysts with its breathtaking strength and resilience.
Low inflation and interest rates coupled with a bounding stock market and increasing job security have, to the delight of retailers, caused consumer confidence and spending to skyrocket.
"Economists continue to be amazed with this economy and people's perception of it," said Stephan Thurman, deputy chief economist for the U.S. Chamber of Commerce. But looking ahead for 1999, economists are cautious: You can have too much of a good thing.
Larry Horowitz, an economist with Primark Decision Economics in Boston, said the economy would slow a bit in 1999. Manufacturers are becoming more efficient, he said, which means they can produce more with fewer people.
"Job growth will remain strong, but it won't be as strong as it was before," he said. "We're simply running out of bodies."
The Labor Department's most recent employment report showed an jobless rate of only 4.2% for the month of March, the 21st consecutive month below 5%. However, the retail trade industry lost 11,000 jobs in March. Employment in food stores increased by 5,000 from 3,557,000 in February to 3,562,000 in March, but employment at eating and drinking places decreased by 48,000 from 7,855,000 in February to 7,807,000 in March.
Consumer prices have remained relatively low, but analysts don't expect the decline to continue. Labor reported in its Consumer Price Index that food and beverage prices rose only 0.2% in February, following a 0.4% increase in January.
The food index, which advanced 0.5% in January, increased 0.1% in February. The index for food at home also rose 0.1% in February, following a 0.5% rise in January. Labor economists pinned the deceleration on a downturn in prices of fruits and vegetables, which dropped 1.1% in February following a 2.2% increase in January.
Prices of cereals and bakery products dropped 0.4% in February after increasing 0.8% in January. Prices of dairy products continued to advance in February, but by less than in recent months; they were up 0.7 percent after increasing 2.3 percent in January.
Thurman predicted a slight increase in inflation this year, which he said could increase all retail prices.
"There is almost no inflation evident in this economy -- still," Horowitz conceded. He noted, however, that increases in oil prices in April and May would cause inflation that would raise production and operating costs.
Annette Clausson, an economist with the Agriculture Department's Economic Research Service, said food prices would go up about 2.5% in 1999, compared with 2.2% in 1998.
"We're not expecting a lot of increase, and partly that's because we have very large supplies of meat," she said. "Beef supplies will decline as the year progresses, and less beef will be competing, which means retail prices for all meats can rise some."
Clausson said high consumer confidence did not necessarily mean consumers would spend more on food. " The percentage of disposable income spent on food in 1998 was 10.7. It will be 10.7% or lower this year, because with income continuing to rise, a lower percentage of that income goes toward food."
Although consumer confidence does not have a big impact on food spending, Horowitz said, "The choice with food is whether you want to go upscale or not. When confidence is high and incomes are good, you tend to eat out more and buy higher-priced items."
Another economist at the USDA, who requested anonymity, said that because low- and moderate-income households are "enjoying higher income levels, they have greater budgets to spend on food."
"Supermarkets will benefit from the low- and moderate-income groups because they will buy more of the traditional foods," the economist said. "They'll be strong buyers in the supermarket."
Grocers can also look forward to relatively stable or increased profit margins this year, if they budget wisely.
"We have relatively stable prices, which helps grocers keep their costs under control," the USDA economist said. "With the inflation being very low and the outlook for food prices being stable, I don't see any reason for profits to be negatively affected."
