Despite the apparent breakdown [in OPEC pricing policies], we have maintained our assumption that average oil prices will decline only moderately in the months ahead, based on the expectation that the Saudis will cut their production even further, and that a pickup in industrial activity in the United States is now beginning. A sharper decline in OPEC prices will on balance stimulate economic activity somewhat further by: (a) holding down inflation; (b) boosting household purchasing power; and (c) reducing the US trade deficit. These factors would be partially offset by lower exports to OPEC countries and reducted energy exploration in the United States. A widespread failure of financial institutions would likely be averted by additional rescheduling of foreign debt and by increased financial aid from foreign governments and international agencies, since only a small number of oil exporting countries would be affected.
- Chase Econometric Associates, Inc. Bala Cynwyd, Penn.
The bottom line of the State of the Union message is neither the President's rhetroic nor the congressional reaction. What's important is whether it signals a basic change in monetary and fiscal policy. Our view is that the original thrust of the policy - despite some modifications and accommodations - is unaltered. And that means we can have recovery without rekindling inflation.
- Citibank, New York
The recession is ending, and a recovery of uncertain strength and staying power is gradually taking shape. After last year's generally dismal forecast record - predictions of an impending improvement in business conditions were heard throughout 1982 - it is not surprising to find that expressions of even mild optimism about 1983 have been greeted with skepticism and even disbelief. Fortunately, the odds in favor of an economic upswing are much higher than they were a year ago. Beyond the increased statistical probability of recovery - the current recession is the longest since World War II - the crucial difference is that compared with early 1982 monetary policy is now on a completely different track.
Although the Federal Reserve has not abandoned the struggle against inflation , it is now very evident that rising unemployment, recession, and anxieties about the international financial structure have replaced inflation as the primary concerns of monetary policy. The Fed's easier posture is clearly visible in the recent rapid growth of bank reserves, sharply lower interest rates since June and a rate of monetary expansion which was allowed to run well above the upper end of the target range during the last quarter of 1982.
- Mellon Bank, Pittsburgh
Although overall gross national product was weaker in the fourth quarter [of 1982], a number of important positive developments emerged. Real final sales rose at a 1.2 percent annual rate in the fourth quarter, with the drop in GNP largely due to reduction of automobile inventories. The removal of these heavy stocks paves the way for substantially heavier car production this quarter. Real consumer spending registered the sharpest gain since the first quarter of 1981, car sales rose to the highest level since the third quarter of 1981, and housing starts were the best since the first quarter of 1981. Though the unemployment rate worsened, initial unemployment claims have been improving for 15 weeks and help wanted advertising has risen for two months.
- Fidelity Bank, Philadelphia