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ECONOMIC GROWTH SHOULD INCREASE THROUGH THE SECOND HALF OF THE YEAR, STEIN ROE & FARNHAM CHIEF ECONOMIST SAYS

 ECONOMIC GROWTH SHOULD INCREASE THROUGH THE SECOND HALF
 OF THE YEAR, STEIN ROE & FARNHAM CHIEF ECONOMIST SAYS
 CHICAGO, June 25 /PRNewswire/ -- The nation's gross domestic product should continue to expand in the second half of the year, with real growth increasing to a rate of 3.25 percent from a rate of 2.7 percent in the first quarter, according to Stein Roe & Farnham Incorporated Chief Economist Harvey B. Hirschhorn.
 "We anticipate further improvement in the economy, but it will be too little, too late to support President Bush's re-election efforts," Hirschhorn said.
 Hirschhorn said that economic growth will be fueled principally by the Federal Reserve's accommodative monetary stance over the past year and by a swing toward inventory accumulation.
 "Indicators continue to suggest that the economic recovery is progressing," Hirschhorn said. "First, the drop in business inventories in the first quarter should reverse in the next several quarters as business and consumer demand improves, thus adding to real growth. Second, with low short-term interest rates, business credit demand has improved. Lower borrowing costs should lead to better cash flows and the likelihood that more viable investment projects will proceed in the future. In fact, businesses are planning a 6.0 percent increase on plant and equipment this year, a positive for real growth. In addition, consumer discretionary income has risen as mortgages have been refinanced at lower rates. The enrichment in spendable income combined with more consumer optimism should lead to improvement in the auto sector and retail sales in general. Third, low inflation also helps to strengthen consumption through better purchasing power of real income. And finally, the Federal Reserve is likely to maintain a modestly stimulative policy," he said.
 Hirschhorn said that after a surprise easing move during April, Federal Reserve monetary policy is currently on "hold," as the Fed gauges the strength of new economic data. Nonetheless, Hirschhorn said the Fed is likely in the near term to err on the side of greater ease and lower rates somewhat more if economic conditions soften again.
 "We believe that the further improvement in the economy will be accompanied by heightened credit demands, which will exert some upward pressure on short-term rates by year end as the expansion proceeds," he continued. "At the same time, however, with a sub par recovery and low inflation, long-term rates may ease over the coming months, leading to a flatter yield curve."
 Hirschhorn projected that inflationary pressures would remain favorable for the next year or so, because rising productivity has resulted in smaller gains in unit labor costs, wage growth has decelerated, and price pressure has been reduced by ample capacity in the economy.
 "Recently there has been some upward pressure on commodity prices -- specifically, energy and food -- due to the extremely dry weather during May coupled with unchanged OPEC quotas. These forces may contribute to modest increases in inflation over the next few months. By and large, however, we continue to expect price increases to average about 3.0 percent this year, firming somewhat as the economy proceeds," Hirschhorn said.
 Hirschhorn cautioned, however, that even with the expected acceleration in economic activity, his forecast of 3.25 percent growth for the remainder of 1992 is lower than what would be considered an average recovery growth rate of 5.0 to 6.0 percent. Several factors, including state and local fiscal problems and service sector restructuring, are weighing heavily on economic resilience, he said, while federal regulation will tend to dampen economic vigor.
 "The key to the sustainability of the recovery is the employment situation. While the overall household and payroll employment picture has been mixed, recent employment statistics have been consistent with continued economic recovery."
 Stein Roe & Farnham, founded in 1932, has more than $26 billion in assets under management. The firm provides professional investment counsel for individual clients and institutions. The firm also is investment adviser to the SteinRoe family of 16 no-load mutual funds. Stein Roe & Farnham services clients worldwide from its Chicago headquarters and regional offices in Cleveland, Fort Lauderdale, Fla., Minneapolis, New York, Scottsdale, Ariz., and Puerto Rico.
 -0- 6/25/92
 /CONTACT: Martin Gawne of Stein Roe & Farnham, 312-368-2126/ CO: Stein Roe & Farnham Incorporated ST: Illinois IN: FIN SU: ECO


TS -- NY044 -- 7972 06/25/92 12:58 EDT
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Date:Jun 25, 1992
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