Figures on windup of economy in '84 hint at fresh bounce. Christmas sales sagged, but output, income, and housing came on strong
THIS week we get the first official statistics on the strength of the economy during the fourth quarter: the preliminary estimate of the United States gross national product. Meanwhile, the most recent economic data from Washington make it appear that, if that quarter was somewhat disappointing, it at least set the stage for the bounceback during the present quarter. Retail sales in December declined 0.1 percent. Most observers had been expecting a mild rise for the month. Business inventories rose only slightly -- 0.1 percent -- during November. But in this case, that can be interpreted as being a positive statistic. When business is expanding briskly, companies build inventories; they need to have enough merchandise on hand to meet expected sales. When business begins to slack off, however, as it did last summer, increases in inventories usually mean that merchants have not been able to sell their goods as fast as they expected. Then they begin to cut back on their stocks. This is what was going on last fall, and the small rise in inventories during November, when manufacturers' sales actually climbed by 1.1 percent, means that inventories were probably getting under better control again.
Several statistics were released during the week that were unequivocally on the positive side of the ledger. Industrial production climbed 0.6 percent during December. And personal income rose 0.5 percent, after a 0.6 percent rise the previous receding month. The banks' prime lending rate dropped another notch, to 101/2 percent. This brought the prime down to its lowest level since August 1983 and should help borrowers.
The recent softness in interest rates is probably aiding housing starts, which rose 2.1 percent in December. The rise came in single-family housing, representing a wager on the part of home builders that more buyers will be able to qualify for home mortgages. Overall, housing had its best year since 1979, and builders do not expect 1985 to show a net increase over '84.
The operating rates in factories also climbed during December, from 81.6 to 81.9 percent of capacity. This figure is generally well below the rate at which inflationary pressures kick in, although in a few selected industries the rate is already much higher. The overall increase for the month is a good sign for business going into the new year.
Several of the world's leading finance ministers met in Washington during the week to discuss the status of the US dollar. Since the start of the year it has taken another ratchet up against most other currencies, and many of the experts on currencies are baffled by its continuing strength. There is little enthusiasm for any official attempt to roll back the dollar. Not only would this be contrary to the philosophy of the Reagan administration; there are few practitioners of the financial arts who believe that an attempt at a rollback would succeed.
The effects of the overpriced dollar are now fairly obvious -- an import boom that made the US trade deficit shoot up to $120 billion last year; businesses having a hard time exporting, with negative effects on US employment levels; better business conditions for some of our competitor nations, which have helped lead them out of their recessions.
More attention needs to be given to the reasons for the boom in dollars. Until recently, the conventional wisdom was that this would end when US interest rates declined, and that the economic effects ascribed to the high dollar would then be reversed. But short-term rates have declined significantly over several months, and one must question this kind of ``wisdom.''
US financial markets are the most efficient in the world. The US itself is looked on as the safest political haven. The US economy is ``where it's at,'' in the eyes of many foreigners. Add up the political, financial, and economic factors, together with the fact that commodity trade such as in oil is priced in dollar terms. Then one must at least ask: Are we moving onto a new plateau from which we need to learn to look with new eyes at the new relationships that are evolving because of a permanently higher dollar?