The good news is that employment in general and manufacturing employment in particular have finally started to improve -- and can be expected to grow robustly for the rest of this year. That would essentially duplicate the pattern that occurred after the previous recession (1993-94), when it took 28 months from the time the recovery began until manufacturing employment started to rise. Manufacturing employment then rose by 340,000 during the following 12 months, and a similar gain may well occur this time. The bad news, which has already been heavily advertised, is that the combination of higher inflation and the large federal budget deficit will eventually send interest rates sharply higher, causing another substantial reverse in the stock market and, after the appropriate lag of two to three calendar quarters, a return to stagnant growth. That was what occurred during most of 1995, and it was not until substantial strides were made in reducing the budget deficit that the U.S. economy returned to above-average growth. Thus, if recent history repeats itself, we will have another year and a half of robust growth and declining unemployment, followed by at least a temporary return to stagnation. However, I believe the results this time could be gloomier than last. First, the stock market is now overvalued, whereas in mid-1993 it was still undervalued. The numbers depend on whether trailing or projected earnings are used, but on an apples-to-apples basis, the current price/earnings ratio for the S&P 500 is about 30% higher than it was a decade ago. Second, last time the housing boom was still ahead of us, whereas now it is behind us. We don't need a housing bust; the spur to growth will end if prices simply level off in real terms. Third, many consumers are now living on borrowed time. During the past year, as wages and salaries increased 4.3%, consumer spending rose 6%, thanks to the tax cut. But that imbalance can't continue much longer. Fourth, the federal budget deficit problems are more intractable now than they were a decade ago. The deficit will continue to grow indefinitely under current legislation. More spending for Iraq. More for Medicare drug benefits. More social welfare programs. If this were a Democratic administration, the business community would be screaming bloody murder. What's more, tax receipts will not rebound as fast as they did a decade ago, since a tax hike next year is unlikely -- and we know the key to reducing the deficit down is pruning spending programs. The Bush administration purposely exaggerated the federal budget deficit number a few months ago so they could bring it down during the course of the election year. But that sort of shenanigans does not impress anyone. Fifth, the increasingly global economy and upcoming expanded "free-trade" agreements will cut into our net exports much more than in the mid-1990s. The U.S. dollar was essentially flat from 1990 through 1994 and real exports rose 6.3% per year in spite of a worldwide recession. Recently, the dollar has fallen almost 30%, yet real exports this year will actually be below 2000 levels. When the dollar starts to rise again the drop in net exports will be even more severe. All these factors indicate that while growth will probably remain robust for the duration of this year -- since the U.S. economy generally does not turn on a dime in either direction -- the next two years are likely to be quite disappointing, with real growth plunging back to the 2% to 3% range. Michael K. Evans is chief economist for American Economics Group, Washington, D.C., and president of the Evans Group, an economics consulting firm in Boca Raton, Fla.