Drop in oil prices, interest rates, and inflation could mean stronger recovery

Evidence is growing that the long-stalled US recovery is developing at a faster pace that most Americans would have dared to hope. At the heart of this new-found optimism lies good news about inflation, which for years has warped the decisions which families and corporations make about their economic future.

Martin Feldstein, chief economic advisor to President Reagan, says the gains which the US had made against inflation are ''very solid.'' He foresees little inflationary threat arising this year.

If he were preparing the 1983 economic forecast for the White House now, said Dr. Feldstein Sunday on ''Face the Nation'' (CBS), he probably would assign a brisker growth rate to the economy than the 3.1 percent which the Reagan administration released last month.

Federal Reserve chairman Paul A. Volcker, speaking on ''Meet The Press'' (NBC), said he sees the opportunity for ''a long period of balanced . . . expansion,'' because of progress in the battle against inflation and other factors.

Private economists generally predict that the US economy will grow in the range of 3.5 to 4 percent from the fourth quarter of 1982 to the last quarter of 1983.

Officially, said Dr. Feldstein, the White House will not change its 1983 estimate until this summer.

Another positive development is the downward movement of interest rates, a trend evidenced most recently by the decline in the prime rate from 11 to 10.5 percent.

Top government officials, including Treasury Secretary Donald T. Regan and Federal Reserve chairman Volcker, are putting heat on the lending community to lower interest rates still more, especially those levied on consumer loans.

Lenders may comply, unless they become convinced that the White House and Congress are taking insufficient action to reduce prospective budget deficits in years ahead.

Major unsolved problems still confront the economy, including huge government budget deficits, stubbornly high unemploment, and rapidly worsening American trade relations with the outside world.

These problems, if uncorrected, could renew the nation's inflationary fears, which in time would boost interest rates and exert a drag on recovery.

For the moment, however, green lights are appearing on the economic road which Americans will travel in 1983.

Reasons for optimism about inflation are broader than simply the good news that consumer prices in January climbed only slightly and that wholesale prices actually fell.

The inflation rate, broadly measured, depends over the long run on the relationship between productivity and unit labor costs, or what an employer pays workers per unit of output.

If wages and benefits rise in tandem with the output of goods and services, no inflation occurs. But that has not been the case in recent years.

Wages and benefits soared, while productivity - or output per hour of work - stagnated. This was a major cause of the nation's high inflation rate from 1978 through 1981. Now the gap between what a worker produces and what he earns is closing.

A long recession, accompanied by widespread job loss, has impelled workers - union and nonunion alike - to scale back their demands for higher wages and benefits.

This comes at a time when the price of food appears to be stable and the cost of oil, which translates in the price of gasoline and home heating fuel, is actually going down.

Putting all this together, consumer prices may rise no more, and possibly less, than the 3.9 percent increase recorded last year.

No one can be sure at this point how far the price of oil will fall, as members of the Organization of Petroleum Exporting Countries compete with each other, and with oil producers outside the cartel, for sales.

Key nations to watch are Britain and Nigeria, both of which sell high-quality crude and need more money, and Saudi Arabia, which financially can afford to undercut everyone else in the scramble for markets.

Persian Gulf oil producers, led by Saudi Arabia, are prepared if necessary to drop their prices as low as $27 dollars a barrel, according to the Middle East Economic Survey, an authoritative newsletter close to Saudi thinking.

Falling oil prices, experts point out, are not an unalloyed blessing, partly because debtor nations like Mexico - which depends on income earned from oil - may find it harder to pay their debts. Worldwide, however, many billions of dollars will be released for spending in ways more productive than simply flowing into the coffers of oil-exporting states.

Americans, for example, will have more money to spend on shoes, clothing, entertainment, and a host of other things than would have been the case if oil prices had not come down.

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