Can the Good Times Keep Rolling?

"Feeling Vulnerable."

That's how economist David Wyss headlined an article for his firm's monthly publication, Review of the U.S. Economy.

It seems a contrast with what Federal Reserve Chairman Alan Greenspan told Congress a month or so ago. "The current economic performance is as impressive as any I have witnessed in my near half-century of daily observations of the American economy," he said.

What discomforts Mr. Wyss are three factors: the East Asia financial crisis, stock market overvaluation, and faster inflation.

Looking at inflation, the economist for Standard & Poor's DRI, a Lexington, Mass., consulting firm, is thinking of 1999.

"This is not this year's problem," Wyss says. "The price numbers are great. It is a good time to be an American consumer."

The consumer price index for June rose a mere 0.1 percent, up 1.7 percent from 12 months earlier. The producer price index for the same month fell 0.1 percent and was down 0.8 percent for the previous 12 months.

That's the best inflation news in a generation.

Can it last?

Wyss and some other economists suspect that a few factors now keeping a lid on consumer prices will reverse in the months ahead.

1. The strong US dollar.

It has helped keep down the price of imports and US-made goods that compete with imports. "But the dollar is not going to go up forever," Wyss says.

Alex Patelis, an economist with Goldman, Sachs & Co., a New York-based investment banking firm, worries that a slowdown in US economic growth will weaken stock prices. This, he says, could reverse the dollar's performance on foreign exchange markets, pushing up import prices.

2. Weak oil prices.

Oil prices, running about $13 a barrel, are nearly half of what they were at the start of 1997.

Oil-exporting countries want to bring prices back up and are pressuring one another to reduce their oil output. That effort already has had some success.

Wyss also says that colder weather will up the demand for fuel. "Eventually we are going to have a cold winter. It could be next winter," he says.

Rising oil prices will boost the costs of transportation, heating, cooling, and production.

3. Wages and fringe benefits.

"Wage growth has accelerated and labor is feeling more militant," notes Wyss. He cites the General Motors strike as an example of a tougher union mood.

A measure of wages and fringes known as the employment cost index is up 3.5 percent in the 12 months through June. That's a modest acceleration.

Another Goldman Sachs economist, John Youngdahl, finds that the squeeze on the supply of labor has put the US in "the inflationary danger zone."

Anecdotes about companies bidding to attract new employees with hiring bonuses and higher wages are widespread.

Economists assume management at some point will pass on rising wage costs to consumers through higher prices - if it can.

With rising stock prices, companies have had to make smaller contributions to their pension plans to cover rising benefit projections. If stock prices decline or rise more slowly, companies will have to make up the difference.

Another fringe, health care, may be getting more costly.

Health care costs were up at a 3.6 percent annual rate in the six months through May, notes Edward Yardeni, chief economist in New York for Deutsche Bank.

If the bill of rights for patients passes Congress, it could add to health costs, says Cynthia Latta, a colleague of Wyss.

Rising productivity - more output per hour an employee works - can offset rising costs, and productivity is up.

But Mr. Patelis suspects that if the economy slows, as widely expected, productivity gains will not be so great, putting pressure on profit margins and prices.

For now, economists see happy times ahead. Their consensus is that inflation will run at a 2.3 percent rate for the next 12 months.

If the Fed keeps the economy from growing too fast, Wyss says, the economic expansion could "keep going for a few years."