Economists Brighten On Economic View

ACCORDING to most economic forecasters, prospects for the United States economy are improving slightly.

``Gradually, ever so gradually,'' says Edward Campbell, senior economist with Brown Brothers Harriman & Co., a New York investment banking firm.

This month's survey of 50 economists by Blue Chip Economic Indicators in Sedona, Ariz., found an average forecast of inflation-adjusted growth in national output this year of 2.7 percent, up one-tenth of a percentage point from September.

That forecast pales compared with the gains of a real 3.9 percent in 1983 and 6.2 percent in 1984 after the sharp 1981-82 recession. Nonetheless, 21 members of the panel did boost their predictions for 1993. And 2.7 percent growth would be far better than the 1.3 percent real growth rate in the first half of this year.

Mr. Campbell talks of a 3 percent annual rate of real growth in the fourth quarter. Paul Kasriel, an economist at the Northern Trust Company in Chicago, suggests as high as 3.5 percent.

Here are some reasons they and other economists offer for optimism:

r For about two years commercial banks have been strengthening their finances by building up capital. This has involved exercising restraint in making loans to business. Instead they bought more than $200 billion in securities, primarily US government securities on which they need not set aside reserves against possible losses.

Now, Mr. Kasriel says, ``banks are in better shape to lend and are getting more aggressive.'' A survey of bank loan officers by the Federal Reserve in August showed that banks were even trimming interest rates on some loans, though they haven't cut the prime rate on which home equity loans and some other loans are based.

``The breaking up of the bank credit crunch is tantamount to an easing in monetary policy,'' Kasriel adds.

r The broad money supply - the fuel for the economy - is growing again. One such measure, M-2, shrunk at an annual rate of 2.1 percent in the first part of this year through March. Since then it has been growing at a 4.5 percent annual rate.

``That is a big swing,'' Kasriel says.

r Sales of automobiles built in North America have started picking up. In the first 10 days of October, sales of autos and light trucks were running at an annual rate of 12.1 million units, up from a 11.2 million rate in September.

Moreover, inventories are low compared with sales, indicating that auto companies may have to step up production soon.

r Consumer spending also appears to be holding up in other areas, though retail sales rose a disappointing 0.1 percent in September, according to the Commerce Department. A survey known as the Johnson Redbook projects sales of general merchandise rising 1.2 percent this month.

r Consumer installment credit has grown at a 5.9 percent annual rate since May. Personal income has been rising at a 6.9 percent annual rate over the past six months, or 5 percent after removing inflation, notes Lawrence Kudlow, chief economist at Bear Stearns & Co. Profits are still rising, though not as rapidly as a year ago.

Inflation has remained modest. Wholesale prices inched up 0.2 percent in September. But this was the first increase in five months. The September advance was blamed on a 0.7 percent rise in food costs, with fruit and vegetable prices up sharply. Energy prices at this producer level were unchanged after dropping for four straight months. So far this year producer prices have risen at a seasonally adjusted annual rate of 0.8 percent, compared with a 1.6 percent gain in 1992.

More pessimistic economists can and do cite nearly as many negative factors in the economy to justify their views. But most economists would agree with Campbell in anticipating ``modest growth, modest inflation'' ahead.

If so, the nation won't enjoy what economists call ``full employment'' - with the unemployment rate around 5.5 percent to 6 percent compared with 6.8 percent in September - until 1995, according to DRI/McGraw-Hill, a Lexington, Mass., economic consulting firm. With jobs hard to find, many of the unemployed are taking a long time to get back to work.

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