Economists Cheerier, But Doubts Continue
HERE'S a multiple choice question. How is the United States economy doing?
A) Don't believe recent encouraging data, it is still in trouble.
B) Hurrah, it is about to boom.
C) The economy is improving, but it will be a struggle.
Leonard Lempert of Statistical Indicator Associates, North Egremont, Mass., chooses "C." He notes that if the nation's output of goods and services remained absolutely flat throughout this year, real gross domestic product for 1993 would still be 1.2 percent above that of 1992. That's because a spurt in growth in the fourth quarter of 1992 put the economy at a level above 1992 as a whole. So Mr. Lempert's forecast of 2.7 percent real growth in 1993 - or the consensus forecast of 3.1 percent - does not si gnal a bustling economy.
That consensus forecast of the 50 economists polled by Blue Chip Economic Indicators has been raised slightly since January. The forecasts within this group ranged from 2.5 to 4.2 percent.
What is perhaps surprising is that none of the 50 is more optimistic. "It is hard to envision something good when it has been bad for so long," Lempert says. "Month after month we have seen a recovery which is hardly going anywhere."
Most measures of economic activity didn't reach their pre-recession highs until last fall - long after the recovery started in March 1991. Most recoveries since World War II have been far more vigorous.
Because of this picture, economists assume the Clinton administration will announce Wednesday a fiscal stimulus package of around $30 billion to $35 billion. "This recovery has already stalled twice, hence some insurance against a third stall seems warranted," note Roger Brinner and David Wyss of DRI/McGraw-Hill.
They are assuming an extra $22 billion in education and highway spending, an additional $13 billion in health care for the uninsured. They expect cuts of about $7 billion in military spending from the Bush plan for a total defense reduction of $16 billion. Taxes on the well-to-do should go up $16 billion, gasoline taxes up $5 billion or so. Another $3 billion may be collected from foreign corporations operating in the US.
On a net basis, that means a $15 billion boost to the economy. This, DRI estimates, should support 200,000 to 300,000 extra jobs, which "may be the difference between rising and falling unemployment rates, given the current precarious balance between job creation and new entrants to the labor force."
One element that troubles many economists is the decline during December and January in the broad measures of money supply, the fuel for the economy. "I tend to buy the Federal Reserve's arguments that this is temporary and caused by special factors," Mr. Wyss says. "But it still makes me nervous. It suggests we might have problems this spring."
Lacy Hunt, chief economist of Carroll McEntee & McGinley Inc., adds that in January the level of commercial and industrial loans by the nation's banks lost all the gains made in the autumn. Moreover, the impact of post-hurricane reconstruction will fall off. Mr. Hunt figures that the aftermath of the big blows in Hawaii and Florida accounted for 2.1 percentage points of the 3.6 percent rate of growth in the last half of 1992. Mr. Hunt forecasts growth at only a 1.5 percent annual rate in the first half o f 1993.
Wyss, by the way, says the hurricane expenditures added only 0.5 percentage points to the growth rate at the end of 1992.
Another drag on the economy could be a slowdown in exports, Hunt says. Western Germany's economy will shrink in 1993 for the first time in nine years, the Bonn government forecast this week. According to that prediction, the 1 percent decline in real output in the western part of the country will boost the unemployment rate from 7.7 percent last year to 9 percent. Japan also is in a slump - only 2.1 percent real growth in 1993 - according to a consensus of economists compiled by Globescope.
Some trends are good. Housing and auto sales are up. Prudential Economics figures "the Fed's easier monetary policy stance and improved bank capital and profitability should serve to ensure close to 4-percent real growth in 1993." If the recovery falters, the Fed will surely hear from Clinton officials.