Masonry Magazine August 1986 Page. 17
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Many economists still hold to the belief that a pick-up in business activity is due in the second half of 1986, but find it harder all the time. Many of the figures that come in seem to point to the opposite conclusion. These analysts are not yet ready to throw in the towel, though. They still believe that powerful forces already in motion will generate the rebound. But, after many months of waiting, their confidence is starting to erode.
If unmistakable signs of a brisk upturn do not show soon, new steps to stimulate growth are certain to be adopted.
The weak business statistics have clearly disappointed economists in both the government and the private sector. They have been quite surprised by the procession of dreary numbers that were reported in the past quarter. The employment picture has been sluggish, with manufacturing jobs shrinking. Retail sales including autos, have been flat or have even edged lower. Industrial production has fallen, erasing all the gains of the past year. And business' plans to invest in new plant capacity have been diminishing.
With home-building the one bright spot in the picture so far, the growth rate the economy registers this half year could be little, if any, better than the first six months.
Business analysts are busily rechecking their forecasts these days, wondering what, if anything, could have gone wrong with their projections. So far, though, their rechecking keeps coming up with the same conclusions: The economy will probably accelerate its expansion in the quarters to come. But economists admit to being puzzled; they can't see why they went astray. They feel that they have no alternatives but to ride along with the forces of expansion that in the past have generally produced a worthwhile pick-up.
Analysts cite the following forces, as they have for many months, though with rising uncertainty and uneasiness now.
* The interest-rate decline will sustain the housing boom.
* The slide in the dollar should begin to increase exports.
* Lower oil-prices leave billions more for consumer buying.
But Washington won't wait very much longer for the pick-up to show. Policy-making officials are getting nervous about the persistent softness. The White House has started to press the credit-controlling Federal Reserve to take clear steps to ease money more that is, push interest rates lower. And the approach of this fall's elections is making the Congress nervous: Senate majority leader Bob Dole has already called on the Fed to get going.
Some officials have concluded that the odds on a recession now exceed those for a good business pick-up over the last half of this year. They don't see where the strength will be stemming from, certainly not from the other industrial countries of the world. Indeed, some pessimists have felt from the start that 1986 would see only meager 2% growth.
But new steps to ease credit will be quite moderate, officials say. Interest rates have already come down substantially over the past year. Further precipitous decline could help refuel inflation and put the dollar, now in an appropriate trading range, into a dangerous, unchecked free fall.
Fears of deflation are beginning to grow these days. They have not replaced the worries about a possible revival of price pressures that are still felt at the Federal Reserve and among quite a few business analysts. But clearly an array of powerful forces are pulling prices down and are continuing the momentum that was generated by the steep drop in oil prices. These skeptics are impressed by the very broad and persistent declines that have developed in other commodity prices in metals and farm products, etc. And these items will remain depressed as long as the world economy is weak.
What's more, the present sluggishness in the U.S. should tend to keep unemployment high; that, in turn, will keep wage rates from leaping while holding labor costs down.
The gain for American industry from a lower dollar has been spotty so far and disappointing, as a whole, to business analysts in Washington. Officials are aware of considerable optimism in U.S. corporate boardrooms about improved prospects for domestic manufacturers, but have still to see an actual jump in new orders or the hoped-for pick-up in hiring or output.
There has been some progress noted in reclaiming markets that were once lost to the Germans and the Japanese, but the actual recovery has been rather moderate, over-all.
Little gain has been scored against such rapidly growing countries as South Korea and Taiwan, which are invading U.S. markets at a fast pace, preempting some sales from the erstwhile import leaders, Germany and Japan. The Korean and Taiwanese currencies are closely linked to that of the U.S. They move up and down with it. Thus, their prices aren't as much affected by any changes in the value of the dollar as those of other nations may be.
Industry's efforts to change plant work rules are moving to centerstage in union negotiations this year in steel, equipment and the railroads. With profits better, management can no longer push hard for wage give-backs.
MASONRY-JULY/AUGUST, 1986 17