Masonry Magazine August 1988 Page. 25
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BUSINESS WILL CONTINUE TO BE GOOD during 1988's second half, in the view of economists in government and industry. There are several areas of strength that all but assure further expansion, though probably not at the very solid pace registered in the first half. A tighter credit policy and higher interest rates will mean some slowdown, but not to a significant or disturbing degree. Net, the six-year upturn shows little sign of reaching an early end; indeed, some slowing may be desirable to head off inflation.
The economy entered the second half with considerable forward momentum. Real growth over the first half turned in a strong performance-a big surprise to those analysts who had expected the start of a recession. The doomsayers figured the October stock crash would hurt the economy. Consumers, facing a loss of wealth from lower stocks, would reduce spending. And that would lead to an inventory build-up and slashes in orders and output. Thus, the business expansion would grind to an end.
But it did not work out that way. The market crash had little impact. The economy advanced at an impressive 3.6% annual rate in the first quarter and moved ahead nicely in the second, too.
ANALYSTS CAN POINT TO KEY AREAS that will keep the expansion rolling. Most important of all is the dramatic improvement going on in foreign trade. The merchandise-trade deficit should continue its uneven, but steady slide. Exports have been surging, helped by the earlier decline in the U.S. dollar. It makes American-made products highly competitive in many overseas markets, reversing the steady and dismal shrinkage that occurred in the past decade. Further, there's been a slowdown in the flood of imports into this country, with consumers switching from foreign goods to less expensive U.S. products.
A lower trade deficit is a good plus for real Gross National Product-the country's total output of goods and services, netting out inflation. And the deficit will keep shrinking.
EXPORT BUSINESS WILL CONTINUE TO MEAN GAINS in industrial production. That will come on top of orders from U.S. companies trying to hike capacity. Capital-spending plans of U.S. companies have now begun to increase rapidly. Latest surveys show business intends to spend 11% more on fixed investment-plant and equipment-in 1988, as against 2.4% in 1987 and a 2% drop in 1986. And the surveys have been revised up progressively as the year went along.
ANALYSTS DON'T DOWNPLAY THE CONSUMER'S ROLE in extending the upturn. To be sure, people are not buying as freely as they were in earlier years. But the underlying rise in consumption is around a 2% rate in real terms-an unspectacular, but still helpful increase for an export-driven economy.
Disposable income keeps rising, as the number working climbs healthily. This is giving consumers the wherewithal to keep spending at a moderate clip, even while saving a little more.
Put it all together-strong exports, business's brisk capital outlays, and a consumer who won't play dead and you get an economy that will be advancing at a solid pace for some time. The expansion may well turn out to be the longest in history.
REAL GNP GROWTH COULD RISE AT A 3% RATE or a bit more this quarter. In the final quarter, economic gains could slow down to a 2%% to 3% range, as the effects of the Federal Reserve's tighter monetary policy take hold. After all, the central bank has applied several doses of restraint so far. But the impact of the higher interest rates resulting is already built in.
Nevertheless, analysts have had to revise up their forecasts for 1988. For the entire year, real growth may expand 3.2%, down from 1987's 4% pace, but up significantly from the 22% that even the most optimistic economists had been expecting.
SUCH ECONOMIC GROWTH UNDERLIES NEW WORRY about reviving inflation. This pace is above the economy's long-term growth potential of around 24%. And such growth is worrisome to many economists because productive output, after six continuous years of the expansion, is now approaching capacity. The pressure on resources is already visible in steel, aluminum, textiles, paper and certain chemicals. And the list is growing month after month.
What's more, industrial commodities prices have been surging recently. And now the sharp spurt in farm prices has followed the drought in many states, which will-ultimately be having an adverse impact on the prices for food and other products.
FINALLY, THERE IS SPREADING EVIDENCE OF TIGHTENING in labor markets. The over-all jobless rate is at or very close to a full-employment level. And in many areas the unemployment rate is even lower than the U.S. average. Thus, it is not surprising that the wage outlook is starting to deteriorate; average hourly wages have risen 4.3% so far in 1988 as against 2.4% in 1987. The analysts now look for price and wage inflation to accelerate this half, with consumer prices rising to the 54% to 5%% range by the end of the year.
But the experts don't foresee an extended period of higher inflation. Modest consumer spending should please turn page
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