Masonry Magazine December 1985 Page. 23
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THE UNCERTAINTIES THAT CLOUD many of the major concerns of business these days seem likely to continue for some time. Government officials in Washington and private-sector analysts are nervous and doubtful about what will happen to the economy... foreign trade... tax reform... and the deficits. There has rarely been such a great divergence in the views of forecasters. But many feel cautious optimism over the way these problems will work out. Fair-to-middlin' business activity is projected, plus an encouraging start by Congress on the trade and budget deficits. Tax reform may have to wait.
ECONOMIC FORECASTS range all the way from a recession to near-boom, as directly opposing projections are advanced by equally respected experts. The optimists look for a lowered dollar and some inventory-building to lift the growth rate to close to 5% between now and the fourth quarter of 1986. (The President's leading economic adviser clings steadfastly to this view.) In the process, the rate of inflation would accelerate to 5% or even 6%.
The pessimists don't feel that the dollar's slide will have much impact in the coming year and are worried that consumers will save more and spend less. The consensus, however, falls just about in the middle of the spectrum.
MOST ECONOMISTS look for only moderate growth this quarter and for most of next year. They see no new sources of strength suddenly appearing. The consumer will keep rocking along, buying a a bit more as his income rises. Industry will probably add only a little to its presently lean inventories. And its capital spending will focus on modernization rather than expansion.
The experts anticipate little lift from home-building in months ahead. Mortgage rates won't fall much more; and lending standards have been tightened. So sales and new starts can hold at an only fair 1.7 million-a-year rate.
THIS SUGGESTS a rate of growth in real Gross National Product-total output of goods and services, net of inflation of 2%-3% by next fall. And that would not be bad for an expansion that is already three years old. Most analysts would assign a probability to 60% to this midline forecast. They would rate both the near-boom and the recession scenarios at 20% each.
UNCERTAINTY ABOUT INTEREST RATES follows from the economic outlook. You hear forecasts of measurable increases (if business moves up vigorously) as well as predictions of declines (if the economy slips into a recession). But again the consensus goes down the middle: Very little change likely. Short-term rates for obligations due in a year or less-will jiggle no more than a quarter to a half point down from today's. Long? Also a bit lower.
Specifically, there is scant expectation of a significant change in either the commercial banks' prime lending rate or the charges on mortgage loans. As noted, a sluggish economy may nudge such rates down only a minor fraction.
DON'T COUNT ON EASIER MONEY and lower interest rates merely because of President Reagan's latest two nominations to the Federal Reserve Board. The incoming governors reportedly lean to policies that imply easier money; with Reagan's two earlier appointments, they could rule the seven-man body. In other words, they appear to threaten chairman Paul Volcker's leadership. But "Fed" officials don't think this is very likely... and say so privately. For one thing. Volcker retains support of the Fed district bank presidents who share policy-making and prefer fighting inflation to spurring business.
Also, as chairman, Volcker controls the Board's agenda and can avoid many adverse votes. Note that he does not seem worried; he says that he fully intends to finish his term.
MANY EXPERTS WORRY whether the dollar will go low enough, soon enough, to make a difference in the increasingly critical trade balance during 1986. First, there are doubts over whether the five-nation effort to drive it down can succeed while interest rates stay high enough to lure foreign investors. Whenever intervention in the currency markets slows, the dollar creeps back. It is not clear yet that the yen can be pushed below the 200 to the dollar-or the mark below the two and a half-that's needed to boost American trade. Second, America's exports will need a lot of time to regain markets abroad. Once a customer gets used to a source of supply-in, say Japan or Germany-it is hard to switch him; it takes more than just matching price or quality. Also, many former customers are now bound to others by long-term contracts.
It could be 1987 or even later before U.S. manufacturing rebounds if then. Many industries and firms may never make up ground lost in recent years, if they do survive.
THERE'S NO NEED TO WORRY about renewed inflation from a lower dollar over the next year or so. It will be a while before imports cost much more. For one thing. wage increases will be smaller, on the average, during 1986. to judge from the terms of the multi-year contracts signed so far this year. But commodity prices could firm up, now that some other industrial nations-Germany and Japan, for example-are taking action to spur their economies; as times goes on, they will be bidding more aggressively for raw materials.
Net, the key price indexes may not repeat the heartening performance of 1985 to date, when producer