
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, November 30, 1993                   TAG: 9311300031
SECTION: BUSINESS                    PAGE: B-5   EDITION: METRO 
SOURCE: By Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

NEXT YEAR, JUST A LITTLE BIT BETTER

The economy will grow only modestly in 1994, propelled by business investment and housing sales, top business economists forecast Monday. But they said the slow growth will help keep a lid on inflation and interest rates.

In its latest quarterly outlook, the National Association of Business Economists predicted the stop-and-go pattern that has characterized the economy since it emerged from recession in March 1991 would continue.

A variety of forces, including cutbacks in defense spending and layoffs at some of America's biggest corporations, are still holding the economy back, the economists said.

"This is a continuation of the pattern in which the economy lurches forward for a quarter or two, only to slow subsequently," said William Dunkelberg, president of the association and dean of the business school at Temple University.

Dunkelberg said forecasters expected growth in the current quarter to average 3.3 percent, the best in a year, reflecting strong consumer spending. But he said consumers would not be able to keep up this pace, given the weak gains in employment.

For next year, he said, the standout performers would be business investment, which has surged nearly 11 percent this year, and housing. The economists said new homes would be built at an annual rate of 1.36 million units, up 8 percent from this year's pace.

Among the other predictions:

\ Growth: The overall economy, as measured by the gross domestic product, will expand 2.8 percent on a year-over-year basis in 1994, the same pace forecast for this year. Measured from the fourth quarter, GDP is expected to rise by 2.7 percent, up one-half percentage point from this year.

\ Employment: The unemployment rate will average 6.5 percent, slightly improved from the current 6.8 percent. Dunkelberg said the economy has to grow at a 2.5 percent rate just to keep the unemployment rate from rising. Thus, a 2.8 percent growth rate would mean only a small improvement in the jobless rate.

\ Inflation: The weak economy will help restrain wage and price pressures, with consumer prices expected to rise 2.9 percent this year and 3.3 percent in 1994. Prices were up 3.1 percent in 1992.

\ Interest rates: Short-term interest rates will gradually creep up as the Federal Reserve begins to tighten credit conditions next year in an effort to stay ahead of any inflationary pressures. The yield on three-month Treasury bills was projected to rise from its level of around 3 percent to 3.6 percent by the end of 1994 and to 3.9 percent by September 1995. Long-term interest rates, which are set by market forces, are near 6 percent. They should remain little changed over the next year, ending 1994 at 6.2 percent, then rising to 6.5 percent by September 1995.

\ Trade: The current-account trade deficit, which includes merchandise and services, should rise from $96 billion last year to $110 billion this year and hit $124 billion in 1994. Dunkelberg said the trade gap should begin improving in 1995 as the economies in major overseas markets begin to recover and start buying more U.S. exports.

by CNB