Masonry Magazine October 1987 Page. 25
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There has been a sea-change in the economy's tempo in recent months, in the view of economists in government and industry. They see increasing evidence of speed-up in the pace of business activity. The latest figures are pointing to more zip than seemed likely a little earlier, with most of the improvement coming in the once-depressed industrial sectors. But the more rapid pace of business generates worries about inflation. The faster growth could reinforce the trend toward more rapid price increases. Thus, the Federal Reserve could soon have to hike interest rates to curb a surge.
The economy's gathering momentum has become apparent only in recent months. It's nothing like runaway boom, of course. But the expansion is five years old and instead of weakening as might be expected, it keeps rolling and gaining strength.
The statistics suggest that industry is doing better at home and abroad. Exports are continuing to rise, a result of the drop in the dollar's value. What is more, the U.S. consumer has been stepping up spending lately enough to take on more foreign goods while buying more domestically-produced items.
There's a big list of numbers pointing to better times for industry. Recent labor force data, for example, show dramatic acceleration in jobs; the number working in the non-farm sector rose substantially this summer, while the unemployment rate eased to the lowest level since December 1979. Even more startling is what happened in the manufacturing sector in July-a rise of 70,000, equalling the net gain in factory jobs of the past year.
In addition, industrial output has been rising steadily for months now. Production jumped a healthy 0.8% in July, the sixth consecutive monthly increase. Given the sluggishness in auto assemblies, the basic picture appears even better.
There's more good news for the economy in the factory-order figures. Not only have new orders been rising, but backlogs are seeing new strength. Unfilled durable-goods orders increased at a 15% clip in the second quarter. This makes further gains in production all but certain in the coming months. It means that capacity utilization will continue to move up in months ahead. It's the sort of pattern seen when business is moving toward faster growth; that has certainly been the case at numerous times during the post-war era.
The state of manufacturers' inventories, excluding autos, confirms these conclusions. Stocks of materials and work in process rose slightly in the second quarter. But the stocks of finished goods fell; shipments exceeded output.
Even consumers are showing new, surprising signs of coming to life. The volume of retail sales actually rose briskly through much of the summer. This came at a time when economists were worried about a slowing in buying; the feeling was that income wasn't rising much and debt burdens were heavy.
But the consumer seems to have the wherewithal to keep his spending high. Rising employment and the wealth-effect of the rising stock market are clear pluses. They could well effectively neutralize the drag of the consumer's big debts.
To be sure, not all of the key sectors are showing vigor these days. Home-building, for one, has been weakening slowly but steadily for months, in response to a jump in mortgage interest rates that occurred last spring. Housing starts, though, aren't a major drag on over-all business activity; building permits, harbingers of future activity, have slipped only mildly.
Nonresidential construction has been clearly declining for some time-a result of over-building and the new tax law.
Weighing the newly seen strength against the small weaknesses gives a picture of an economy that could well do better than expected this half. It's not hard to see a 3%-plus growth rate in real Gross National Product-the total output of U.S. goods and services, after netting out inflation for the current quarter. The fourth quarter could turn out even stronger.
The White House has reaffirmed its growth forecast of 3.2% for this year-an estimate that was viewed earlier by many economists as overly optimistic. Given the strength that has been developing, even this forecast could be exceeded.
A stronger economy does not bode well for the outlook for inflation. Faster growth may reinforce the recent trend toward more rapid price gains. Consumer prices have been advancing at a 54%-a-year rate so far this year. Some of the push came from temporary factors-like the run-up in food costs. But a good part came from boosts in imports, where the end is not in sight.
U.S. firms are boosting prices under an umbrella of higher import prices. Demand pressures-at least in some areas-may be adding to the price thrust. It may not be too long before capacity constraints on production begin to appear.
Analysts worry that higher prices will soon spill over to wage hikes. If the historical record is a guide, it won't be long before trouble starts. At times in the past, a 6% unemployment rate has operated to un-
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