July 08, 1999

As the first half of the year comes to an end, the economy is surprisingly strong, theres little or no sign of inflation, and the stock market continues to climb into record territory. We attribute the economy's strength, in large part, to the wealth effect and the Y2K or millenium bug. We believe the future economic outlook is good and that people are looking further into the future, which leads to a surge in aggregate demand relative to supply. The millenium bug has a similar effect, individuals and businesses, preparing for the worst, have accelerated much of their planned purchases into this year. This has led to stronger than expected real GDP growth. But to the extent that the millenium bug causes a temporal shift we expect the economy to slow after years end to work off the accumulated inventory.

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