MONDAY, August 29, 2005 — Business leaders can be generally optimistic about what's to come over the next several years, with a growing economy and the business cycle suggesting expansion could last late into this decade.

Citing a broad range of statistics and trends, economist Mike Walden appeared bullish about the future when he addressed more than 100 community leaders Thursday afternoon at the summer Committee of 100 luncheon in Sanford.

"The good news is that, in terms of the general pace of economic activity, we are in an economic expansion," he said. "And, if you're involved in business, especially, you get that sense.

"You get the sense that maybe everything is not perfect — sure, there are always things that could be better — but business activity seems to be on an upswing."

Economies follow long-established patterns, Walden explained, and the state and national economies have been growing since the last recession ended in 2001. With jobs and personal income rising — not to mention unemployment rates tumbling — things are looking up.

Walden, a professor at North Carolina State University and popular radio personality, did predict the cycle will eventually shift into a recession phase, as it always does.

"This business cycle is something that is with us," he explained. "Economists smarter than I am have tried to solve it by thinking about ways the government or other entities, perhaps, can eliminate recessions, and we never have been able to.

"You can bank, I think, on the fact that, within another five or six years, we'll probably hit a speed bump. There will be a recessionary period, but we'll come back from that."


Structural change

Though the economy is strong, long-lasting changes in the way it's structured have created challenges and unease for many business leaders.

More American jobs now require "brainpower" rather than "brawnpower," and that trend will only accelerate in the future.

Reduced trade barriers, beginning after World War II, mean more countries are involved in world commerce, and countries have started to specialize their industries to carve out a profitable niche.

And technology is changing so fast that even once-isolated countries are now fully engaged in the marketplace. With technological change, there are three billion more capitalists, Walden said, thanks in large part to new economic activity in China, India and eastern Europe. That fact, he insists, changes the way things are done around the world.

Walden's solution: adapt. Nobody can control these forces creating change, he said, not even states or nations. Success will require accepting the new rules and capitalizing on opportunities.


The future of manufacturing

Industries relying on low-wage workers will move off shore. But, though Walden believes some industries are lost, the United States can still compete in manufacturing. If, that is, America can become more productive, build a superior financial system and maintain its stable environment.

Some companies moving out the country years ago eventually returned to take advantage of America's modern transportation, stable political systems and well-educated, productive workers.

"We don't have to throw in the towel on all manufacturing," he said. "It is very much dependent upon the type of manufacturing and what factors are important to those manufacturers."


Other observations

During his 45-minute presentation, the economist also listed other implications of the changing economy and tackled some other questions "ripped from the headlines":

* With the shift in jobs away from unskilled labor, Walden said, education and training are more important than ever before. Growth sectors include medicine, education, technology, communications and engineering. Skilled craftsmen and technicians also will be in high demand, as will workers for lower-paid personal service positions.

* Worldwide financial markets will become even more integrated, leaving some economic prognosticators scratching their heads over what to expect in the future. Many top economists, Walden said, were baffled by why long-term interest rates have continued to drop recently. It could be explained, he believes, by foreign savings moving into the American market. With tightly-integrated financial markets, low interest rates in this country can easily attract money from savings-oriented cultures in Japan, China and Germany.

* Though gasoline prices are not yet at an all-time high, based on constant dollars, they are getting close. And prices may remain above $2 per gallon for the foreseeable future. Prices are up because of increased demand, Walden said, but not primarily from American consumers. Instead, increased economic activity in China and India are now driving world demand. Though prices are high, Walden does not expect any gas-oriented economic crash. Gasoline accounts for just 5 percent of all spending by business and consumers, he said, and the increase in gas prices is largely offset by a drop in the price of other consumer goods.

* The "housing bubble," a crash in housing values predicted by some economists, may be big news in the national press, but should not affect many North Carolinians. When comparing sale prices of the same houses over time, overall prices in the state have risen just 3 to 4 percent a year. "The short answer: No, not going to happen," Walden said. If there is any legitimate concern in the Tar Heel State, it would be in the mountains or along the coast, where the severely-limited number of lots and higher demand have driven prices up more than 10 percent per year.