WHY THE GOOD TIMES MIGHT LAST

By John Greenwald

Talk about legs! After six years and counting, the marathon expansion of the U.S. economy is already the country's third longest on record, and many economists expect it to stride right into the 21st century. "This is truly the best business expansion in American history, and it's going to last at least until the end of the decade," predicts Allen Sinai, chief global economist for Primark Decision Economics. Such endurance would put the upturn ahead of both the 1960s and the 1980s on the pursuit-of-happiness scale.

Those decades came to ugly conclusions, alas, but this one is likely to be different. Why? Unlike most earlier expansions, which crashed to earth when the Federal Reserve raised interest rates sharply to cool down an overinflating economy, the 1990s-style growth shows few signs of strain. To the contrary, a rare combination of price stability and moderate gains in the gross domestic product has made this upturn remarkably steady. Many economists say this tranquillity is owing to the Federal Reserve's strategy of tightening credit in the middle of the decade before prices could turn up. "Inflation is the lowest in 30 years, even though we are in the seventh year of an expansion," says Ed Yardeni, chief economist for Deutsche Morgan Grenfell. "This is extraordinary."

And almost entirely unpredicted. That's because the performance reflects sea changes in everything from the way Americans work to the nature of defense policies. The cold war's demise has helped reduce the federal deficit, and thus interest rates, by shifting dollars away from military spending. At the same time, converts to capitalism have craved American products, enabling U.S. companies to ring up rising sales from Russia to Chile. With the whole world eager for American computers, cars and corn, U.S. exports reached a record $611 billion in 1996 and have been outstripping that pace this year.

America's companies, and especially its workers, went through restructuring torment in the early '90s, but as a result are now punishingly competitive. Adding to the U.S. advantage: Americans are far ahead of their European and Japanese counterparts in embracing computers and communications systems in homes and offices. With companies increasingly able to get more from their people and resources, corporate profits, and hence stock prices, have risen relentlessly.

Yet what economists call "exogenous shocks"--a fancy term for unforeseen events like Iraq's 1990 invasion of Kuwait--could shatter the rosy forecasts. So could overzealous monetary tightening by the Fed, which may nudge up interest rates for the second time this year when it meets next week. "Expansions don't die of old age," says David Wyss, research director for DRI/McGraw Hill. "But, like people, they do become vulnerable to shocks." This time around, says Wyss, there seems to be enough cushioning to get us to the next millennium in style.

--By John Greenwald. Reported by Bernard Baumohl/New York City

With reporting by BERNARD BAUMOHL/NEW YORK CITY