The year 2000 was a transition year in a lot of ways. Though Y2K amounted to mild mass hysteria, people did have to get used to writing the date with 20 in front of the year rather than 19. It was a new millennium (depending on your view of Year 0) that seemed to have started off under the best possible terms.
Not only were stocks on fire at the outset, the economy was, too. The idea of this ‘new economy’ leading toward a permanent new plateau of low inflation growth, driven by the breathtaking productivity gains in telecommunications and computing, seemed quite real on the surface. US GDP advanced by more than 3% in 15 straight quarters from Q2 1996 through Q4 1999, averaging a sizzling 4.7% in those nearly four years of dot-com supremacy.
The labor market was clearly robust, too. In March 2000, the BLS estimates (current benchmarks) that total payrolls (Establishment Survey) rose by 468k from that February. That brought the 6-month average up to +303k, a record of expansion that also mystified economists for its lack of inflationary wage pressures. In any case, the late nineties had roared up to the doorstep of the 21st century.
We all know what happened in April 2000, as investors suddenly got cold feet about first the high flying NASDAQ. It wasn’t just stock prices and IPOs, of course, as it really meant one of the major economic themes of that age was in danger being undermined, if not thoroughly debunked. The new economy of the 21st century might not have been grounded so solidly in true economics (small ‘e’) as everyone thought (especially those running the Fed).
This post was published at Zero Hedge on Dec 10, 2017.