Masonry Magazine April 1988 Page. 29
theWASHINGTONire...
The U.S. ECONOMY ISN'T LIKELY TO MOVE INTO RECESSION in 1988, despite the run of sluggish business figures reported in recent months. Economists in government and industry can point to enough strength to keep the upturn rolling on, but at a slower pace than a 4%-plus growth rate of 1987's last half year. They do not entirely rule out a downturn in the next six months. The run-off of excessive inventories could cause business activity to slip. But a majority of analysts place a very low probability on a serious slide.
To be sure, business activity is in the process of slowing down at present. Almost all forecasters-private and government-are in agreement on this; they expect 1988 to register less real expansion than in 1987. But some moderation in growth is seen as necessary and desirable. Analysts feel it would be unhealthy for growth to keep on at the late-1987 rate; the economy could overheat, with rising inflation a result.
SOME OF THESE EXPERTS FEAR WEAKNESS WILL CUMULATE in months ahead. They base their concern on looming efforts to work down large inventories, as well as a slowdown in the spending by consumers on big-ticket products. These may combine to lead to severe cutbacks in new orders and production. And business wouldn't be encouraged to go on with capital spending plans.
But it should be stressed that this gloomy outlook for the economy reflects thinking of only a minority of forecasters.
PREDICTIONS OF RECESSION AREN'T SHARED by a majority of economists. While most, as noted, wouldn't say that a downturn is out of the question, these forecasters would put the probable odds at significantly below 50%. They perceive the economy as fundamentally sound not in any great danger. All the country will see is a brief slowing in a basically upbeat outlook.
THE OPTIMISTS DO NOT AGREE THAT EXCESSIVE INVENTORIES spell trouble. A large part of the fourth-quarter build-up in stocks came in automobiles; production cuts have already been made, with output now at a 6 million clip, even though sales were running at a 7 million annual rate in recent months. So lower auto output, though slowing the economy, should prove short-lived.
What's more, a portion of the inventory gains were probably voluntary-needed to sustain rapid growth in manufacturing, particularly for export. Another portion of the increase in stocks clearly centered in imported goods-especially at retailers-meaning the production cuts would occur abroad.
IN ADDITION, THERE'S NO SIGN OF WEAKNESS in the new-orders figures. Bookings have been very strong, rising at a 17% rate in the fourth quarter, even after taking out the volatile aircraft component. Very significantly, the increases were widespread, and unfilled orders continued to post gains.
MOST IMPORTANT OF ALL, DEMAND FOR U.S. EXPORTS is growing strongly. American products are very competitive abroad after the dollar's big drop. The merchandise-trade deficit has finally started to show some improvement, declining from more than $17 billion in October to $12 billion in December. Most of the improvement is in exports, rather than a slackening of imports. This would mean continued increases in industrial production and employment.
THERE IS LITTLE EVIDENCE THAT CONSUMER SPENDING is about to collapse. To be sure, personal consumption expenditures plunged in the fourth quarter. But a look behind the over-all figures for the period is less discouraging. Spending hit its bottom in October and actually rose in the next two months. Retail sales registered a fair-sized increase in January-increasing 0.5%, and the previous month was revised up to 1.2% from an earlier reported 0.7%.
Most officials look for spending to move along moderately with moderate increases in personal income. On the whole, consumption is not likely to be a drag on total activity.
LOWER INTEREST RATES ALSO PROVIDE SOME INSURANCE against recession. The Federal Reserve decided to ease its monetary policy in early February, thus validating the interest-rate decline that had occurred in the market. The Fed's move was a very limited one... not an all-out aggressive action. Though few of the monetary policy-makers were concerned about a recession, the central bankers chose in favor of chancing too-easy credit conditions, just to be on the safe side, in case a recession should suddenly develop.
Officials know such slight easing won't have a big impact on activity. But, at the margin, lower rate levels could bring a little stimulation. A few previously reluctant consumers might be tempted to buy a car or home. Lower financing costs might prompt businessmen to spend more freely on equipment.
YET, MOST ECONOMISTS FEEL CERTAIN that real Gross National Product-total output of goods and services, netting out the impact of inflation-will show steady gains over this half year, say, at a 1% to 2% annual rate. What's more, these officials can see some acceleration in