Republicans tout good economic news. Reagan points to Japan pact, trade figures, factory orders
Washington — On the eve of Election '86, the Republicans are suddenly spreading good news about the economy. In the past week, the Reagan administration has announced:
An ``agreement'' with the Japanese, who will stimulate their own economy by cutting interest rates, reduce personal and corporate income taxes, and increase their government spending. In return, the United States will ``resist protectionist pressures and work toward free and fair trade.'' This could result in fewer Japanese imports to the US and, therefore, more American jobs. It is expected that Treasury Secretary James Baker III will end his attempt to lower the value of the dollar relative to the yen.
That the trade deficit has shown improvement for the second straight month.
That US factory orders were up 3.4 percent in September - the largest gain in almost two years.
President Reagan, pounding the campaign trail for GOP hopefuls, has used the good news as a sign that his economic policies have been successful. On Friday, the Treasury Department hastily assembled reporters to announce the US-Japan agreement - in which the Japanese agree to a lot more than the US.
A senior Treasury official insisted that the timing of the announcement had more to do with events in Tokyo than in the US. Stated the official, ``Clearly there is a confluence this particular week of fiscal, tax, and monetary actions that they see as going together, fitting together to stimulate their economy.'' But that's not the way Democratic House Speaker Thomas P. O'Neill sees it. At a press conference with reporters after the US-Japanese agreement, he said the President ``has always come out with some kind of statement just when we were ready to pass a trade bill....''
The timing of the announcement with Japan did not surprise some commentators. Richard Witten, a vice-president at Goldman Sachs, a Wall Street investment banking firm, stated, ``It's certainly a human instinct to get the good news out when you need it.''
And David Wyss, chief financial economist for DRI, a forecasting service in Lexington, Mass., quipped: ``It was pretty much a unilateral action. You don't call in the press when the Japanese cut their discount rate. Obviously, it's an attempt to get political mileage out of it.'' But economists said the Japanese actions and the improvement in the trade numbers were important.
The Japanese central bank agreed to reduce its discount rate from 3.5 percent to 3 percent. In reducing its lending rate, the Japanese government is encouraging its savers to invest in US government securities, which have higher yields than comparable Japanese securities.
In addition, the government agreed to spend an additional 3.6 trillion yen in a fiscal stimulus package. And, finally, the government said it will reduce taxes.
By stimulating its economy, Japan will not increase demand for American-made goods, since the US does not sell many manufactured goods there anyway. But as Mr. Witten notes, ``The Japanese government might become a magnet for goods from third-world countries like Brazil which are now exporting to the US.''
Foreign-exchange markets also seemed to believe that the US and Japan had come to an agreement on exchange rates - not allowing the yen to fall much further. A senior Treasury official denied that the countries had established any rates but did note that the yen had been trading in the lower part of its range. Witten notes that governments never cite specific agreements on currencies, since it would encourage currency speculation.
In lowering its interest rates, Japan has also indirectly put pressure on the German central bank to lower its interest rates. But many analysts doubt that the Germans will act. Currently, the German economy is growing at a 3 percent rate. ``This looks pretty good to the Germans,'' Wyss says.
Economists were pleased to see the trade deficit improve in September, a month when it frequently is larger. But some of the improvement was attributable to Detroit's cut-rate auto financing. More Americans bought US cars, and that cut down on the imports of Japanese cars. ``It does not mean we're free and clear,'' states Wyss, ``but it does offer us some encouragment.'' Democrats did not see the numbers as much of an improvement. Sen. Robert Byrd of West Virginia, the Democratic minority leader, complained, ``The trade crisis continues to threaten America's economy more profoundly than anything since the Great Depression.''
A key factor in the economy, Federal Reserve policy, has remained above the fray. The Federal Reserve Board has scheduled an Open Market Committee meeting on Wednesday, the day after the election. The Fed likes to appear nonpartisan around election time. So it is not expected to lower the discount rate.