Product Glut Fueling U.S. Economy (450)

KNOXVILLE, Tenn.–The best U.S. economic conditions in three decades are being fueled by a glut of cars, computers, electronic gadgets and other consumer goods, a University of Tennessee-Knoxville professor said Friday.

 Dr. Matt Murray said a full market of products, high employment and low interest rates are producing conditions unseen since the 1960s. And he said the economy may continue to flourish.

“We have an over supply of productive capacity in the world economy. We have more ability to produce than we have purchasing power,” said Murray, head of UT-Knoxville’s economics department.

 The only clouds Murray sees on the national economic horizon are currency problems in Asia, continued high-wage job loss by corporate downsizing, and the possibility of price slashing or deflation, a current buzzword largely unknown to baby-boomers.

“The state and national economies remain sound. I don’t see any inherent weaknesses,” said Murray who is also assistant director UT’s Center for Business and Economic Research.

“The underlying financial and political institutions in Tennessee and the nation are as sound as anywhere in the world and as solid as they have been in recent history.”

 Free trade has contributed to the oversupply of goods, Murray said, and from this looms the specter of deflation.

 “If this process of producing and exporting continues, some economists fear we could have deflation and even spiraling deflation. Third-world and developed countries could see the markets for their products start to shrink, causing them to respond by slashing prices.”

 While this sounds appealing to consumers, manufacturing costs are fixed by labor and materials contracts. The collision of price-cutting and fixed costs creates another economic calamity -massive job losses, he said.

 Murray does not think this will happen. Neither does he think Asia’s currency problems, which have resulted in the near collapse of a couple of nation’s stock markets, will have a huge effect on the United States.

 Loss of value of Asian currencies means those nations can’t afford to buy imports from America and other countries with stronger currency, Murray said.

“They can’t afford to buy our products and the cost of their products drops.”

 Prices that make a new Japanese car or Korean-built computer so attractive to consumers here have exacted their toll on the U.S. economy in the form of lay-offs from formerly rock-solid companies like AT&T and JC Penney, latest to announce large job cuts.

 “Companies are laying off employees to rein in costs in an economic environment where they are hard-pressed to raise final product prices. If you can’t raise prices, you cut costs or close up shop.”

 If there is a positive note to the layoffs, which started in the 1980s, it’s that U.S. firms can and have responded to overseas competition, he said.

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 Contact: Dr. Matt Murray (423-974-5441)