Masonry Magazine December 1988 Page. 21
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IT'S BEGINNING TO LOOK AS THOUGH THE SIGNS OF BUSINESS SLOWING of recent months were basically a summer lull in an otherwise brisk expansion. Certain of the latest statistics strongly suggest that a rebound in economic activity is under way, a development that certainly didn't hurt George Bush's chances in the November 8 election. Additional evidence will be needed before a final conclusion can be reached. But much of recent doubts about a solid rate of growth have been dispelled. As a result, worries about inflation have revived and interest rates may have to be pushed up a little higher still.
To be sure, the data were less than brisk through the last half of the summer. Consumer spending was flat, orders for durables fell, and home-building and home sales declined.
MOST SIGNIFICANT OF ALL, THOUGH, WAS THE SLUGGISHNESS in the figures on employment. They were up in September, but the increase was well below those of previous months. What's more, the number of jobs in the critical manufacturing sector actually dropped-and for the second consecutive month. It was not surprising to most analysts, therefore, when the official report on the country's' industrial production came out, showing no gain at all.
So, there was reason to believe that economic growth was moderating-that the Federal Reserve's tight-money policy was producing results. It appeared that the tempo would slow a little more in the months ahead to the 2%-plus considered to be the economy's long-term growth potential. Pressures of inflation would level off and abate. And it would not be necessary for the "Fed" to tighten again.
BUT OCTOBER'S EMPLOYMENT FIGURES SEEM TO HAVE changed the outlook again. They have called into question the belief that the rate of growth is decelerating. Payroll jobs jumped by a strong 323,000, and the jobless rate fell to 5.3%, lowest in a decade. Jobs in the critical manufacturing sector, alone, jumped 99,000, more than offsetting the declines of the two months previous. And that small over-all gain of September was revised up. This suggests that October's industrial production will show a solid gain.
Clear support for these conclusions has come from reports from the nation's purchasing agents who discern a brisk rebound from the summer pace. It was apparent in output and orders-especially in orders to the export sector. The expectation is that this faster tempo will make the fourth quarter's gain nearly as good as the first half's.
THESE RECENT REPORTS MAKE A RECESSION HIGHLY UNLIKELY until at least well into 1989. Indeed. the worry in Washington-and at the Federal Reserve specifically is about the opposite: Too much vigor for an economy near or even at full employment, with resources in many industries already utilized fully. Further gains at rates beyond the long-term growth level could speed up the inflation rate, with hikes in wages as well as prices accelerating.
So, a shift to an easier monetary policy would appear to be out of the question for the foreseeable future. Quite the contrary: Quite a few economists now expect to see more tightening-and higher interest rates in the months ahead.
THESE ANALYSTS NOTE THAT THE ECONOMY'S UNDERPINNINGS ARE STRONG and healthy. Even before the employment figures changed the business outlook, a number of basic sectors were providing substantial support for continuing expansion. Industry's capital spending has been rolling on at a very good pace; bookings are still coming in at a high rate, and order backlogs have been rising. There's even a chance that consumer spending will be brisker; incomes are climbing, the decline in oil and energy prices is leaving more money available for purchasing other items, and apparel sales are reviving.
Similarly, the underlying inflation rate has continued to be strong and troublesome, even during the summer's lull. The most comprehensive over-all indicator rose at a 4.9%-a-year clip during the third quarter. But that was just a whisker less than the 5% rate recorded in the second.
YET, THERE IS QUITE A STRONG POSSIBILITY THAT THE REDUCED TEMPO of economic activity registered during the August-September period was little more than a lull in an otherwise solid, continuing, upward trend. It could prove to be the sort of pattern that has occurred at one point or another in almost all past business cycles. Officials at the Federal Reserve foresaw such a possibility-one reason why they did not rush to ease right away.
To be sure, the employment numbers alone-and what they imply for industrial production and exports-do not all by themselves justify tightening by the Fed at this point. The summer lull has given the monetary authorities time for a breather-time to wait and watch for developments.
BUT THE CHANCES SEEM QUITE GOOD THAT THE ZIP shown in the jobs data will appear in other important economic indicators as the weeks roll along. That, too, is a classical pattern that many analysts expect to see repeated this time. And if the early fall strength is confirmed. as anticipated, the credit-controllers at the Fed will find themselves forced to yank on the reins again. They will feel less reluctant to act with the election past.