Masonry Magazine August 1987 Page. 18
IT WILL BE MORE OF THE SAME FOR BUSINESS in the second half of the year, an extension of the modest expansion that is now a half-decade old. But, behind the over-all figures, analysts in industry and government see some critical shifts taking place in the composition of the growth, with some major sectors losing steam while others gain some further momentum. It all adds up to a quite acceptable rate of performance for the economy. Real activity, net of inflation, will match last year's showing, overall, with some economists feeling that any deviation will be on the high side.
To be sure, there's some unmistakable softness in business these days. But the weakness was not totally unexpected, and doesn't seem to be signaling the start of a recession.
CONSUMER SPENDING HAS BEEN EXHIBITING MUCH LESS STRENGTH recently. Since February, sales have been quite flat. Consumers seem to be reacting to their high debt burdens and modest gains in personal income by trimming purchases of big-ticket products, such as autos, furniture and appliances.
Car sales appear likely to remain in the doldrums for some months yet. What might have been current auto sales were "borrowed" late in 1986, when shoppers rushed out to beat the end of the sales-tax deduction. And sales incentives appear to have lost much of their stimulative impact now.
THIS DOESN'T MEAN THAT THE BOTTOM IS FALLING OUT of consumer buying. Sales of nondurables and services continue to show moderately strong gains. And several recent surveys report continued underlying consumer confidence. Net, consumption is still likely to grow at about a 2% annual rate in 1987, though that is only about half of the rate of growth registered last year.
But that growth rate would not be very disturbing to most economists. They would like to see increased exports and business investment take over from consumer spending as prime movers of the economy hereafter. Such a shift can rectify imbalances and trim the enormous trade deficit.
HOME-BUILDING IS ALSO LOSING some of its earlier forward momentum, with the slowing accentuated lately by the sharp run-up in mortgage rates. Housing starts have been falling and are at the lowest level in two years. But this weakening in the home-building sector can also be overstressed.
Economists are currently forecasting starts of 1.6 million homes this year, down from 1986 but still a very good pace.
BUT ANALYSTS CAN POINT TO SOME PLUSES in the business outlook, too. Most importantly, there is evidence that foreign trade is turning around. As a matter of fact, the trade deficit has been edging down for months now. The figures alone don't indicate the full extent of the current improvement. Exports are doing better now that U.S. companies have new price advantages. But higher prices of imports have tended to mask the physical improvement.
And the gains are likely to continue as the impact of the fall in the dollar works its way through. The improvement in trade is having a favorable impact on U.S. production.
ANOTHER ENCOURAGING SIGN: Business's capital spending is rising now. Industry has begun to expand its plans to invest in new plant and equipment. Earlier this year, the rise projected in Commerce surveys was 1.8% for 1987. In the survey taken in May, Commerce forecast an increase this year of 2.8%. Given the 4% annual rate of decline registered in the year's first quarter, the figures suggest fairly hefty capital spending for the rest of the year.
Some analysts doubt that all the spending hinted at will be realized, considering the only moderate trend of the economy that is foreseen. Even so, spending for new plant and equipment seems headed for gains after 1986's decline.
IT ALL ADDS UP TO AN ACCEPTABLE PERFORMANCE for the economy for 1987. To be sure, after the strong 4.8% rate of real growth of the first quarter, the second quarter's rather minimal gains were not surprising to analysts. Real business activity could easily end up the year in a 24% to 3% range. Some economists woudn't rule out even stronger growth for 1987 as a whole. If anything, they believe business activity looks brisker now, not weaker.
It is not hard to see how fair consumption and progress on the trade front could combine to yield more thrust in 1987.
THE OUTLOOK FOR ECONOMIC GROWTH ABROAD IS GLOOMIER than in the U.S. The global economy isn't expanding quickly enough to cut high unemployment in industrial nations or raise the standard of living in developing areas. Japan's economy grew at only 2.6% last year, the slowest in a dozen years; the appreciating yen was responsible for hurting the export-driven economy. And German business actually declined during the first quarter of the year.
The prospects for growth in 1988 aren't all that encouraging, either. Japan's economy is likely to advance 2%, even with its new fiscal stimulus. And West Germany may register real economic growth of only 2% in the indentical period of time.
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