Masonry Magazine December 1984 Page. 12
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UNCERTAINTY ABOUT the business outlook is growing among economists in Washington and the private sector. Most still feel the pace of activity will pick up before this quarter has ended. Indeed, they already see some signs of firming that could carry through into 1985-but they have no great confidence in the accuracy of their forecasts. They can see a possibility of further softness, though they do think the economy is basically healthy.
Many economists laid the third-quarter slowing to special factors. For one, consumers suddenly chose to save a bit more and spend less. That led to a moderate build-up of inventories in major manufacturing lines. And the spring jump in mortgage rates took some zip from home-building. All this reinforced the normal, moderate cyclical slowing that was expected to follow out of the steamy first half.
BUT, HOPEFULLY, THE LULL IS OVER-or at least a lot less pronounced. Back-to-school and cool-weather buying has materialized for most retailers, despite a temporary slowdown in late October caused by unseasonable warmth. Housing is picking up. Auto sales continue to exceed levels of a year ago. Personal income and consumer spending, keys to the outlook, are increasing. Over-all, the tempo of activity seems brisker than it was three months ago. The momentum generated bodes well for the economy for many months to come.
Some basic forces will operate to assure moderate gains in business activity through much-if not all-of next year.
* The budget deficit still dominates the economic outlook. Government is still a big consumer of goods and services.
* Business spending for new plant, while no longer zooming, is still exerting a very strong influence for expansion.
* Consumers still have plenty of unmet needs, despite lower backlogs of demand-and are still enjoying rising income.
And, finally, the recent fall in interest rates will serve to spur activity across the board... not in housing alone.
SOME ANALYSTS SEE real gross national product-total price-deflated output-climbing at a rate above 3%, even near 4%, in the current quarter. That would not even come near the 8.6% registered in the hectic first half. But it would be clearly better than the low rate set in the third quarter. And it would start 1985 off on what experts would call just the right note: Rates of growth that are healthy and will be sustainable for the long run-not so low as to lift unemployment... but not too fast to refuel inflation.
WASHINGTON CAN'T SEE a case for recession in this business outlook-not until late next year at the very earliest and perhaps not even then. For one thing, there is no lack of labor or plant capacity to bring a halt. For another, there are still only scattered signs of excessive inventories to curb ordering and production; a good Christmas will slim holdings again. Finally, consumers appear optimistic about the economy and their prospects. There may be no trouble in 1986, in the absence of some big external shock.
What could bring on a recession? A sharp slump in world oil prices. It would make petroleum-producing countries less able to buy U.S. goods. American. banks might also see a jump in bad debts, and oil producers may be damaged.
PRICE SPECIALISTS ARE LOWERING their forecasts of future inflation as a result of the break in world crude-oil prices that started last month. The slowing in the economy, of course, is another reason for such optimism; it suggests even less pressure on capacity and tougher resistance by buyers. And the General Motors package implies wage moderation in other industries. Some experts are now talking of only a 34% to 4% rise in the price indexes in 1985, a significant reduction from the 4% to 5% or more seen weeks ago. Food and fuel can fall still further, easing pressure for wage hikes again.
Salaries of white-collar workers will be held down with wages in 1985. Such pay is also affected by the over-all labor-market environment prevailing-the competition for needed skills and experience. In other words, the cooling economy will be influencing this group, as well. Hikes may average 6%-plus, two-thirds the 1982 increase.
INTEREST RATES WON'T SLUMP, THOUGH, in spite of the inflation gains and the more sluggish economy-forces that brought the rate slide to date. This is more likely to be true of short-term rates than longer-term yields. Even a moderately growing economy, with only a very moderate inflation rate, will require all the new money the Federal Reserve will be ready to supply. With supply and demand in rough balance don't forget the Treasury should continue to be a heavy borrower-key rates cannot move down by very much.
* Short-term rates-say, on obligations that come due in a year or less-may decline by perhaps another point or so.
* Longer-term rates-on bonds and mortgages-can fall even more. These are linked to inflation, and that is easing.
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