As I give this commentary, a question mark still hovers over the presidential election, although the odds clearly favor George W. Bush. But while the election drama plays out in Florida, let's take a step back and mull over the outlook for the economy. The critical questions are: How durable is the longest economic expansion on record, and, will the election put the politics of prosperity at risk? The stock market seems to be saying the economy will grow at a moderate pace next year. Both the Dow Jones industrial average and the Standard & Poor's 500-stock index have recovered some ground since their October lows. To be sure, the stock market will run into some more stomach-churning downdrafts, especially until the election outcome is clear. And investors are still tempering their expectations for corporate earnings. Nevertheless, shareholders are inching closer toward a reasonable stock market valuation for a moderate growth economy. A look at the latest numbers also suggests that the economy retains its vigor. Productivity growth and job creation are still trending in a positive direction. The inflation numbers are constrained. Core producer prices fell slightly in October - the first decline since January. The most recent Beige Book, an on-the-ground survey by the 12 Federal Reserve Banks offers compelling anecdotal evidence that companies are not raising prices despite higher oil and labor costs. Instead, the rise in oil prices is a brake on the economy, much like a tax hike. And the prospect of paying workers a higher wage is forcing management to boost business efficiency. What's more, voters did send a clear signal to policy makers: Don't mess with the economy. Steer clear of any aggressive fiscal policy initiatives, and favor modest bi-partisan legislative proposals. The fiscal discipline that has offered critical support to the long economic expansion is still in place. The economic expansion should continue its stunning run into the record books.

 


FOR OTHER INSTALLMENTS OF CHRIS' COLUMN