Economy lives up to White House forecast

The White House says the country's economic tide is rising. It is not a flood tide, but it is strong enough for the White House comfortably to meet its forecast of an annual 3.2 percent increase in the national economy, says Beryl Sprinkel, chairman of the Council of Economic Advisers.

The main reason for the economic buoyancy, says Mr. Sprinkel, is a pickup in exports.

``On the whole, I think it's working out in a way that's consistent with our initial forecast,'' Sprinkel said in an interview Tuesday.

The White House's initial forecast, issued in December, predicted stronger economic growth in 1987, with an unemployment rate average of 6.7 percent, down from 6.9 percent. At the same time, inflation would jump to 3.8 percent from 0.7 percent last year.

The White House forecast is criticized as overly optimistic by many economists. ``It seems a slow start for the kind of economic growth predicted,'' says Laurence Chimerine, an economist at Chase Econometrics, a forecasting service in Philadelphia.

``It's true January was a little on the weak side,'' agrees Sprinkel. He does maintain, however, that the economy is now showing some healthy signs. One of those signs appeared Tuesday when the Commerce Department reported ``big ticket'' durable goods orders surged 6 percent, higher than most economists had predicted. The jump followed a 9.9 percent drop in January.

Aside from gains in exports, Sprinkel believes the consumer is starting some modest spending after a hiatus in January. In the first quarter, however, he does not expect any sharp increases in consumer spending.

For the year, he expects consumer spending to remain modest. Along with other economists, Sprinkel points to heavy consumer spending in December before the enactment of the tax law, which eliminated the sales tax deduction.

Because the consumer is not spending as freely as last year, Sprinkel says it is not surprising that inventories appear to be rising. ``I would expect that there will be some inventory accumulation,'' he says.

But Sprinkel expects the consumer to remain a force in the economy, especially as the tax cuts show up in paychecks. ``We've added $600 a year in real family income,'' he explains.

Congressional discussions of tax increases, the White House economist maintains, will not help the economy. Sticking to supply side economics, he says, ``Whenever you tax, you dull incentives to work and save.'' Instead of raising revenues, Sprinkel says, Congress should cut spending as the President suggests in his budget proposal.

Sprinkel differs sharply with Washington economists who argue that cutting the budget to meet the Gramm-Rudman deficit-reduction targets will cause a recession.

``I say nonsense,'' he declares. The direct effect of government spending going down is very slow, he explains, ``very minimal, unfortunately.'' Instead, he says paring the budget will help the US trade account.

Like other White House officials, Sprinkel counsels patience in watching the trade deficit shrink. In 1987, he predicts, exports will add about $15 billion to the national economy. At the same time, imports will diminish. ``There is a lag effect,'' he says.

Sprinkel has criticized the Federal Reserve Board and chairman Paul Volcker for creating too much money. But over the past two years, he says, the expansive Fed policy of providing enough liquidity to prevent a recession has been correct. Even with the growth of the money supply, he says, ``There has been no sharp surge in total spending.''

He believes consumer inflation expectations remain low. Even though the White House is predicting higher inflation in 1987, he does not expect interest rates to change much.

Although Sprinkel is not directly involved with the preparations for the economic summit in June, he expects the major issues will be reducing government spending on agriculture, coordination of global economic policies, and continued pressure from the US for its trading partners to further prod their economies.

You've read  of  free articles. Subscribe to continue.
QR Code to Economy lives up to White House forecast
Read this article in
QR Code to Subscription page
Start your subscription today