CIAO DATE: 04/05

The US Economic Outlook

Martin Neil Baily

September 2004

Institute for International Economics

Abstract

Why is growth slowing?

• Oil prices have risen and are expected to remain high

• Slow job and wage growth result in slow income growth

• Low interest rates kept housing and auto sales strong after 2000 - borrowing future growth

• The Iraq war and the terrorism threat may be a drag on confidence . Because 9/11 did not have significant macroeconomic effects, the impact of the war and terrorism seems to be mostly on oil prices

• No new stimulus from monetary or fiscal policy

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