Masonry Magazine August 1985 Page. 11
theWASHINGTONire...
Hope for a Fairly Good Second-Half
Hope for a fairly good second-half tempo of business activity still persists among analysts in government and business, despite some less-than-robust preliminary reports as the summer began. They still see an outlook for continuing expansion, with new jobs being created and sales improving. Further, the inflation rate may slip some, though interest rates will not.
There will still be certain soft spots in the picture in manufacturing, especially. But, hopefully, even this area will be firming up-to a limited extent, at least.
This relative optimism has been helped by a run of better statistics that tended to get less attention than they may have deserved because they were not spectacularly good. But they helped offset certain gloomy numbers such as, first and foremost, the huge and relentless tidal wave of imports that has diverted domestic purchasing power to producers and workers abroad. New orders for durables have been weak, manufacturing jobs and output down.
But on the plus side were the erratic gains in jobs in nonmanufacturing and weekly hours, with all this means for personal income and the consumer's ability to spend.
Actually, it was the new look in consumer buying late in the spring that sparked the more constructive outlook among many government analysts. The retail-sales figure for April was revised upward to a large 2.4% spurt over March. Even reckoning in later mild declines, the quarter looks good. Business can't be bad if the all-important consumer stays in a buying mood.
Adding those steady store sales to some other sources of business strength was all that was required to convert an otherwise draggy picture to a moderate-to-good outlook.
Officials are now hoping that business investment will accelerate in response to the continuing pace of demand apparent at the retail level. Inventories, one class of investment, are in trim shape from tight control exerted during the first quarter, which partly explains the weakness then. It would require little more than continued buying at around current volume to start a train of higher orders, more hiring, and stepped-up production.
Spending for new plant will probably live up to industry's current solid intentions if an up-tick in production were to raise capacity-utilization rates above the present 80%.
The recent fall in interest rates, however, is another major reason for the renewed optimism about the economic performance of the second half. The dip has exceeded a full two percentage points from early-spring levels. That should provide additional lift to so-called interest-sensitive sectors of the economy such as home-building and auto and appliance manufacturing.
Happily, the impact of those interest-rate declines still lies ahead. Cuts exert their stimulation only after lags of, say, a half-year. In other words, the brisk second-quarter performance materialized with little help from the easier money. But the lag-period should end soon. Thus, the lower rates should be helping in late summer and fall.
Net-real, inflation-adjusted growth could reach a 24% to 3% rate, on the average, in the last two quarters in the economic analysts' view. The tempo will be clearly more rapid than that of the January-March period. Indeed, the second-half's performance could even exceed that of April-June. Thus, the growth for the year as a whole could average a fraction under 3%, compared with the 4% that the White House was predicting as the year began. (A part of the shortfall will, of course, reflect the weak first quarter.)
But the economy will still be running at a healthy rate for so late in an expansion. It should be entering 1986 under an ongoing head of steam. That is the main thing to remember in gauging prospects for your own business.
The official forecast of 4% growth is being shaved with reluctance. It was adopted, to begin with, because Reagan's advisers hoped and believed that it would turn out to be right on the button as the year rolled along. But there was a great deal of political wishful thinking involved, as well. A high growth rate was needed to back projections of lower budget deficits and to keep voters supporting the government changes Reagan wants to make.
Now, however, it seems likely that the economic pizzaz needed to reach the Reagan Administration's fiscal goals will be slightly but significantly less than hoped for.
The smaller economic gain may crimp some of Reagan's careful plans for putting the government's fiscal house in order and pepping up business. For one thing, the painful effort to reduce the enormous Federal deficit could be partly offset, even if Congress reaches its spending-cut targets. That would be an additional limitation on further drops in interest rates. This, in turn, would keep the dollar strong and the level of imports high.
Less economic growth would lift the deficit in two ways:
* Outlays would rise as assistance programs-like jobless payments, food stamps, and Medicaid-automatically grow.