Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 1, 1993 TAG: 9307010074
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The consensus of private economists, as measured by Blue Chip Economic Indicators of Sedona, Ariz., is that growth in the gross domestic product, the sum of all goods and services produced within U.S. borders, returned to a moderate 2.4 percent rate in the quarter ended June 30, after racing at a 4.7 percent annual rate in the final three months of last year - the fastest pace in five years - then lapsing sharply in the first quarter of this year, to a paltry 0.7 percent rate.
It should perk up to 3.1 percent during the second half, they said.
"After the seesaw pattern of the last two quarters, I think we are now embarked on what is more of a longer-term trend; that is, modest, gradual economic expansion," said economist Sung Won Sohn of Norwest Corp. in Minneapolis.
Another optimistic report came Wednesday from a panel of top economists advising the American Bankers Association; they predicted the overall economy would grow moderately through 1994.
But Stuart G. Hoffman, chief economist of PNC Bank Corp. in Pittsburgh and panel chairman, warned that "three serious vulnerabilities are standing in the way of more robust economic growth . . . higher taxes brought on by the budget bill, uncertainties associated with the cost to business of health care reform, and the risk that the poor economic performance of our trading partners will have a dampening effect on U.S. exports."
He added some encouraging signs: "Capital spending is rising . . . and there are pent-up consumer demands still to be satisfied, especially in the automobile market."
The 11-member ABA committee predicted second-quarter gross domestic product growth of 2.6 percent, a third-quarter rate of 3.1 percent and fourth quarter of 3. GDP growth should average 3 percent in 1994 as well, it said.
As the year began, virtually all economists agreed the fourth-quarter pace wasn't sustainable. They anticipated at least some slowing as consumers paid off credit card bills run up before the holidays and discovered that their tax refunds were smaller than last year because President Bush had reduced withholding.
But they could not have foreseen the blizzard that blanketed the East Coast in mid-March, disrupting retail sales and home building. Nor did many anticipate the early end of President Clinton's honeymoon with Congress, which deflated the euphoria many voters felt immediately after the election.
"First-quarter growth was probably half what most people anticipated. But one of the reasons was we had extremely bad weather," said economist Mark Zandi of Regional Financial Associates in West Chester, Pa. "Economists can predict a lot of things, but they don't profess to be weathermen."
Also, the long-term factors that have been acting as a drag on growth for several years did not disappear. These include declining military spending, depressed commercial real estate markets, the overhang of corporate and consumer debt, slowdowns in the economies of major trading partners Germany and Japan, and pressure on U.S. companies to stay globally competitive by holding down employment.
"This is a recovery that has been held back by some very powerful forces," said economist Sandra Shaber of The WEFA Group, a Bala Cynwyd, Pa., forecasting firm.
Now that the effect of the temporary factors has waned and some of the long-term drags, such as the debt overhang, are showing gradual improvement, analysts expect a return to a growth rate about halfway between the fourth and first quarters.
"There are all kinds of indicators suggesting the economy is picking up steam, not losing momentum," said economist Paul Lally of R.H. Wrightson and Associates in New York.
Among them is a persistent, albeit slow, improvement in the job market. The nation's unemployment rate slipped from 7.3 percent at the end of 1992 to 6.9 percent in May. Employers added more than 200,000 jobs to their payrolls in both April and May.
That should support decent income growth and a moderate increase in consumer spending.
The other big positive is continuing low interest rates. Unexpectedly scary inflation news in March and April pushed interest rates temporarily higher, but they came down again after the Labor Department said its Consumer Price Index rose just 0.1 percent in May.
"We've had some firming of prices in some areas, but there is not inflationary process underway," said Robert Dederick of Northern Trust Co. in Chicago.
Sales of new and existing homes are expected to keep increasing, which should stimulate sales of furniture and appliances.
Low interest rates also are helping businesses to buy more equipment from computers to factory machinery. That sector should see its best growth in four years.
by CNB