Ease-up in US growth bodes well, but 1970s excesses aren't licked

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There is a growing consensus that United States economic growth is slowing. Last week began with announcement of a fairly sizable decline in the index of leading indicators and ended with a sizable jump in the unemployment rate.

Given the degree to which most economists misjudged the strength of the economy during the first half of 1984, such slowing must be sweet music to their ears. There is, of course, a good reason to be positive about the week's statistics: The vigorous growth of the past two quarters had raised genuine concern about an overheating economy.

The leading indicators declined by 0.9 percent in June. Twice before in 1984 they had declined initially, only to be revised upward. Such could happen again, and one should in any case be cautious about a single month's numbers. Factory orders, also reported during the week, fell 1.4 percent during June, and construction spending declined by 0.2 percent. There was a 2.2 percent drop in residential construction; home building is clearly being affected by rising mortgage interest rates.

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The July unemployment rate, at 7.5 percent of the civilian labor force, reversed the June decline and stands where it did in May. Jobless figures during the summer months are more than normally difficult to interpret. Seasonal adjustments are worked into them because of new entrants into the labor force after graduation from school, but the adjustments themselves may need adjusting from time to time.

On Thursday Alan Greenspan, a former head of the Council of Economic Advisers , testified before the Joint Economic Committee of Congress. In commenting on the current condition of the economy, Mr. Greenspan said, ''There is so much in the way of churning in the underlying set of information that it's very difficult to get it stabilized and sense where the projections are beyond the very short range.'' He also noted what he called ''the extraordinary degree of instability in this total system.''

The historically high interest rates have confused the experts this time around. They have so far not depressed economic activity. Even in home building, the effect has at least been mitigated by the creation of variable-rate mortgages. Expansions do not normally come to an end until higher interest rates make borrowing for future projects uneconomic, or until these interest rates actually shut the door on some part of the economy.

Thus, even though the rate of growth appears to be slowing, there would appear as yet to be no reason on the domestic front for this period of expansion to come to an abrupt halt.

What should concern us, though, is whether the adjustment the economy went through in the early 1980s was enough to cure excesses of the '70s. The last couple of weeks have seen the first talk of deflation in the air. At the very least, that indicates a lot of people finally believe that inflation is behind us.

But the cure for the 1970s has left two nagging problems. Greenspan referred to one of them - the federal budget deficit - in his testimony. He suggested that Congress consider a bipartisan commission to tackle the deficit, just as it did in solving the social security crisis (a commission he chaired). He correctly sees that no one wants to take the sole responsibility for raising taxes.

The other legacy from the '70s is the foreign debt owed to American banks. In a world of slower growth, the resolution of that debt overhang could still pose a problem for many major banks.

The problem the federal government faces, whoever is elected in November, is that slower growth may sound good to those who worry about the domestic economy overheating. But slower growth makes it harder to raise taxes in 1985 and makes resolving the foreign-debt overhang more difficult.

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