Masonry Magazine August 1984 Page. 17
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THE BUSINESS EXPANSION
The business expansion continues to surprise analysts in Washington and the private sector with a strength, a vim, that simply refuses to quit. The economic experts do see considerable evidence of a business slow-down, but it is spotty and is overshadowed for the moment by stronger pluses. And the expansion will probably continue to deliver gains for a while yet; no one is projecting anything like a recession before the end of the year. But many do believe that a new and less ebullient phase is about to begin.
There is still a lot of uncertainty about how much slowing we'll see. Some forecasters say a lot, now that interest rates have gotten so high. Others fear the tempo will stay too strong for steady, long-term growth. Indeed, this school worries over what next year may bring. Quite a few experts can already see the shadowy outlines of a growth recession.
BUT RECENT STATISTICS don't reflect all that much slowing when seen in the context of the entire economy. There are clear minuses, of course: Retail sales have been showing maybe the most significant softening of all. On average, the stores' volume has been rising more slowly in recent months. Also, industrial output has been climbing less rapidly as weekly hours fell. New housing starts have dropped sharply along with the sales of new homes.
There's nothing very surprising in such figures. A little slow-down is to be expected in an expansion's second year. Consumers catch up on deferred spending; business rebuilds inventories. Last spring's interest-rate rise is braking the upturn as well. Mortgage rates above 14% help explain housing's weaker trend. It now costs more to swing a car. Bank-loan rates are beginning to hobble some businesses.
BUT NOTE WHAT SOME OTHER very basic statistics are now indicating a strength that has astonished top government officials and private experts. Total output of goods and services the so-called Gross National Product-jumped nearly 6% in the second quarter, after an even bigger first quarter. That's a huge increase to occur during the second full year of an expansion. (Some analysts were expecting as little as 2-3%... or even nothing at all.) Nearly all sectors, except for home-building, have shared in the gains-consumer spending... government spending and capital spending by business.
And most of the lifting forces are still operating nearly as briskly as heretofore. Hiring has continued at a good rate, as unemployment fell. It keeps helping to maintain the considerable forward momentum that the economy enjoys.
BUT THERE'S STILL A WORRISOME core of uncertainty about the outlook. There isn't enough hard data to give firm conclusions about the second half. But the economy is slowing down. And it will slow even further this half. You will have to wait several weeks... maybe months for a fix on how much.
Forecasts of growth looming for the second-half go from 4% to 5% a year down to 24% or 34%-well below the boomy 9.7% of the first quarter. By comparison, the difference may not appear to be so very important. But it can be of enormous significance for the economy's health, long run.
A LESS-THAN-OVERWHELMING MAJORITY of analysts expects strong growth to last through this quarter and even to or close to the end of the year. Because the U.S. economy is closer to the realistic limits of its capacity than most realize, such growth can accelerate the rise in the price indexes. This is why the Federal Reserve may well nudge interest rates a tad higher. That would probably be the last bit of tightening for this business cycle.
BUT A GROWING MINORITY DISSENTS. It feels the main thrust is over. This view doesn't think capital or defense spending ordain excessive growth. It sees no need for further tightening or for higher interest rates. Some even wonder if we won't notice distinct weakness around election time. A continuing credit stringency could sap vitality even further during 1985, even if rates do come down a bit early next year in response to a slowing.
Congress and the President may increase taxes to reduce the deficit next year. But that might come along just in time to give the downtrend developing another shove.
NO ONE IS TALKING ABOUT A SLIDE of the old-fashioned slumping kind, where real growth actually declines for at least two consecutive quarters. Rather, the expectation is for a "growth" recession during 1985, at worst-some gains in output, but much too feeble to keep unemployment from rising. Sales gains would be too small to write home about; profits would be hurt.
NOTE THE CONFLICTING FORECASTS of how much inflation will accelerate during the second half of the year. They differ very, very substantially. Sure the inflation rate is going higher. All the forecasts agree on that. But how much higher than the current basic or underlying rate of nearly 5%? Some say the speed-up will be very modest; others insist it will be large.
The optimists look for another point or two, at most. They cite small wage hikes, big productivity jumps, high imports. The pessimists can see an inflation rate of 10% by year-end. They base this on the big rise in the money supply registered in 1983; others please tum page
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