Economy turns in good showing for first third of '86. Tumbling prices and rising output lead to `pretty good' forecast
Washington — New statistical snapshots show the United States economy growing at a healthy clip and consumer prices taking their biggest dip in 37 years. The overall economic outlook is ``pretty good,'' says Martin Mauro, senior economist at Merrill Lynch Economics, the forecasting arm of the nation's largest brokerage firm. That is true despite the fact that some parts of the US have been hard hit by falling oil prices.
There is ``some overstatement'' in the latest price and growth figures, says Cynthia Latta, senior economist at Data Resources Inc., a large economic forecasting company. But even after allowing for exaggerations in recent data, most forecasters expect the economy to keep growing this year and next. And while prices are expected to climb at a faster clip in 1987, a return to double-digit inflation is nowhere in sight.
The rosy economic scenario is good news for political incumbents as the 1986 congressional elections approach. White House spokesman Larry Speakes noted that the politically sensitive misery index -- a combination of the nation's inflation and unemployment rates -- peaked at 22 in June 1980. The index ``has now dropped to about 8 under the Reagan administration's 5 years. So you don't hear much about that from the Democrats anymore,'' Mr. Speakes said.
The government reported Wednesday that consumer prices fell 0.3 percent in April, after adjustment for seasonal factors. That was the first time since 1954 that consumer prices had fallen three months in a row. Since February, prices consumers pay have fallen at an annual rate of 4.3 percent. That's the biggest three-month drop since a three-month period ending January 1949. For the first four months of 1986, consumer prices have fallen slightly more than 2 percent.
The sharp drop in energy prices has been a major factor in the cheery inflation news. Last month energy prices fell 5.8 percent overall and gasoline prices plunged 11.3 percent. But gasoline prices are already rising a bit, DRI analyst Latta notes. And when the recent energy-price declines have worked their way through the economy, they will no longer mask the price increases seen in other areas. For example, prices in the service sector of the economy rose at a 5 percent clip in the last three months.
And the dollar's recent drop against the Japanese yen and German mark also will add to inflation, experts say. That's because a weaker dollar makes the dollar price of imported goods rise. And it also provides a price umbrella under which US companies can raise their prices for products that compete with foreign-made goods.
The 50 economists surveyed by the newsletter ``Blue Chip Economic Indicators'' expect consumer prices to rise 2.3 percent this year, down from 3.6 percent in 1985.
``In 1987, though, inflation could rise back into the 4 to 5 percent range as the effects of the oil-price collapse fade, capacity utilization rates increase, and unemployment declines further,'' says David Hale, chief economist at Kemper Financial Serices Inc. in Chicago.
This week the government also revised its estimate of economic growth in the January-to-March period to 3.7 percent at a seasonally adjusted annual rate, up from 3.2 percent. Both figures have been adjusting for inflation.
But much of that growth resulted from businesses building up inventories of unsold goods. Some of the apparent buildup may be the result of incorrect government estimates, DRI economist Latta says. To the extent the figures are accurate, it ``means a cutback in orders'' for goods in coming quarters.