Masonry Magazine October 1988 Page. 25
theWASHINGTONire...
The economy shows signs of slowing a little as it moves into fall. The deceleration is only modest-no stall and certainly not the early stage of a recession. Quite the contrary, the expansion continues apace. Growth is still strong; it merely may be turning out to be a shade less so. But even this is not certain. There isn't enough evidence in hand yet to show whether the slightly slower pace is real... or just one of those blips that is always clouding underlying trends. Coming figures could clear the air.
The sketchy evidence of slowdown even if reversed soon-is already having some significant effects: It allows the credit-controlling Federal Reserve to at least pause in the steady drive to tighten money that it launched last spring.
The hints of cooling have been most obvious in the government job statistics reported for August. They showed an increase of only 220,000 compared to the whopping 532,000 increase registered in the month of June. What's more, the original total for July was revised down significantly. The employment numbers are very important because they track closely with factory and other business activity and foreshadow income-spending gains.
Experts find no fault with the data-no flukes or technical problems. But they do point out that summertime figures are notoriously hard to interpret because of the large surges in and out of the labor force. And a single month's data can be misleading and-as noted above-often reversed a month later. To be sure, there is more to the evidence of slowing than the job figures. The purchasing managers of large corporations also noted a little less ebullience in August. And orders for durable goods... another key measure. declined as well.
But there are still solid pluses in the picture. Exports are still on an uptrend, despite the rebound in the dollar's foreign-exchange value. U.S.-produced goods remain highly competitive in the markets of the world. And even the smaller increases in employment tend to assure that domestic demand will continue to grow at least moderately, adding to the demand from abroad and continuing to keep over-all economic performance moving ahead. This, in turn, suggests that expenditures on new plants will keep climbing. Companies must add to productive capacity to meet the increases in exports.
Consumer spending is still moving up. refusing to yield to restraint. It is not as strong as in 1987, to be sure, but is livelier than predicted. Auto sales keep showing vigor.
These data suggest still further gains in real Gross National Product, the total output of goods and services of the economy, taking out inflation. Growth in the last quarter, initially reported as 3.1%, was revised to 3.3%. The third quarter, which started out so strong, will see another good gain.
Analysts are also impressed with revisions in GNP in 1987. They show an over-all gain for last year of 5%, not the 4% first noted. Economists have to wonder whether 1988 growth isn't being underestimated. More importantly, the economy is operating much closer to effective capacity these days.
Many economists still see some danger of an inflationary break-out. They were disturbed by the 4.7% jump in over-all inflation last quarter-sharply higher than the 3.5% gain registered during 1988's opening period. And the Employment Cost Index, the most comprehensive labor-cost measure, has been on the rise recently, too, compounding the fears of the analysts. Average hourly earnings showed a 0.5% increase in July... a 6%-a-year rate.
Through much of 1988, many signs were pointing to renewed inflation. Labor was getting ever-scarcer in a growing list of industries and areas. And the effects of last summer's drought was being felt on prices that consumers must pay.
Analysts feel the economy must slow to about a 2% to 24% annual rate. Such a rate would be in line with the economy's long-term growth potential. It would probably not put new strains on plant capacity and labor markets. Indeed, the unemployment rate would halt its decline and increase a little. This would ease rising inflationary pressures. Interest rates could fall.
Maybe that's what's happening now. Maybe the economy has begun to slow in response to the Federal Reserve's credit-tightening as well as some natural loss of momentum. Financial experts are of two minds on the issue. Some feel that the answer is yes that the rate of growth will fall to 2% or even less in the year's second-half. If that's the case, there will be enough monetary restraint in place. Interest rates won't have to rise more.
But quite a few analysts including some at the "Fed"-don't agree. They see the rate of over-all economic growth easing to, say, 3% or a bit less. That's still too much. In this era of high capacity utilization, that rapid a tempo would strain plant and manpower capacity and accelerate inflation. This school says it's too soon to say the rate rise is over.
Higher U.S. interest rates could bring a higher value for the dollar. Over time, this may tend to weaken the export surge powering the expansion. But a modestly higher dollar isn't seen as necessarily bad by the analysts. The U.S. is enjoying bigger trade gains from the lower dollar than expected.