Masonry Magazine June 1985 Page. 9
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SOME FURTHER LOSS OF MOMENTUM, but definitely not a recession-that is the current business outlook as the American economy approaches midyear. It's not as good a picture as most forecasters were projecting a month ago. There was a little loss of strength in the first quarter-January to March. But the deceleration was only moderate, not enough to change the likelihood of satisfactory gains in production, hiring, and sales for 1985 over 1984. There are still several major plus-factors that assure continued expansion. One plus could well be slightly easier money-that is, lower interest rates.
The shift in outlook reflects some important statistics just reported by data-collecting agencies in Washington.
• New orders to manufacturers were less than robust. As a result, industrial production has barely gained.
• Capital spending for new plant is providing less thrust to activity; outlay is rising only half the 1984 rate.
THE SPATE OF IMPORTS has gone a long way to slow business activity. Certainly, a good part of those less-than-boomy retail sales have consisted of foreign goods meaning that there was a "leakage" in the flow of orders to U.S. producers. Result: less hiring and demand for parts and materials. And the same has been true for capital goods. A big chunk of the 8% rise in domestic spending for new capacity will benefit machinery makers abroad.
The debilitating impact of imports is causing great and growing concern among responsible officials at several Washington agencies. Large import volume is, in turn, directly attributable to the level of the dollar which is still relatively high, despite its recent declines.
BUT THE SIGNS ARE NOT ALL SOUR. There is still life in the upturn. There are some underlying expansionary forces at work in the economy, too. They appear strong enough to maintain a solid degree of forward momentum, considering that this expansion is, after all, well into its third year. The plain fact is that upturns begin to lose vigor when they get that old.
Some of the positive trends:
• Employment is rising-in services, if not manufacturing.
• Incomes continue to grow, to be spent for U.S. products as well as imports. Consumer confidence remains high.
• The inventory overhang of last Christmas is smaller now.
Home-building is still a moderate force for expansion.
The budget deficit, which cannot be trimmed much until 1986, remains a powerful, stimulative, lifting factor.
Net, many analysts expect this quarter to end up quite a bit stronger than the first, though they don't anticipate anything like the zip that the White House once forecast.
TO BE SURE, forecasts of this year's growth are being shaded a bit, mainly because of that weaker-than-expected beginning in the first quarter. The White House was projecting 4% before 1985 opened; others saw 3%% to 4% in so-called real Gross National Product... total output, net of inflation. Now, 3% is considered more realistic, with 34% an only outside probability.
INTEREST RATES are not likely to change much in this calm climate. The credit-controlling Federal Reserve will keep a steady-as-you-go stance as long as the pace of the economy continues neither too fast nor too slow. But market forces may still be permitted to nudge downward somewhat, if business activity slows a bit further that is, if credit demand eases. The "Fed" might encourage the trend, but only with slight, limited actions.
• The prime rate might fall a point-IF things slow more.
• Mortgage rates, a bit higher recently, would dip less.
THE BUDGET BATTLE won't be over until it's over, as the old saw says. There's much thunder and lightning ahead-with, finally, compromises likely. The spending cuts voted in the end will differ some from Reagan's early set: More paring from defense and somewhat less for each of many social programs. The cuts will total $40 to $50 billion, in the opinion of budget analysts.
PROGRESS ON THE BUDGET would lessen worry about the basic condition of the financial system of both the U.S. and the rest of the world as well. The system still remains vulnerable to shocks that could erupt at any time. Too much credit has been extended to shaky borrowers at home and abroad. The underdeveloped countries owe American banks many hundreds of billions. Similarly, some major corporations in basic industries could, conceivably, default on loans and bring down big banks-as happened in the case of oil. The problems at Continental Illinois and Penn Square hit the system hard.
WHAT TO DO? Controlling the problem must be handled with care. No one wants a financial panic from careless talk. So, officials are quietly prodding lenders to beef up capital. They are urging greater caution in making loans. And they are talking of reregulating financial institutions.
There are lessons in this some rules to follow to avoid trouble: Keep credit extension under control.
MASONRY-MAY/JUNE, 1965 9