ECONOMISTS FORECAST SLOW, STEADY GROWTH
WASHINGTON, Nov. 4 /PRNewswire/ -- The only short-term cure for
the nation's anemic economic recovery is patience, according to expert economists who gathered at the National Housing Center here on
Oct. 30 for the National Association of Home Builders' (NAHB) 45th
Semiannual Construction Forecast Conference.
"Last year, with the economy caught somewhere between recession and recovery, it felt as though we were trapped in a state of economic purgatory," said Dave Seiders, NAHB's chief economist. "Although output did not fall, the rate of growth was well under 2 percent, and for most Americans, this sub-par recovery felt little different than a recession."
The last negative quarter for real growth of the Gross Domestic Product occurred during the first quarter of 1991, but a full year and a half later, following an erratic pattern in which the economy at least twice has seemed to be gaining momentum and then has stalled out, Americans are still wondering when more vigorous growth will commence.
"The Problem is Jobs"
The fundamental problem has been a deep structural problem in the job market, resulting from cost cutting in the industrial and service sectors, according to Seiders.
"Fully 85 percent of job losses in the recent recession were permanent, compared to an average of 56 percent in the four prior downturns," he said. "A large percentage of the unemployed don't expect to be called back."
Concurring with Seiders that "the problem is jobs," Donald Straszheim, first vice president and chief economist at Merrill Lynch in New York, pointed out that 70 percent of recent job losses have been white collar, managerial positions, and just 30 percent in blue collar, assembly line jobs, which often return as output rebounds.
"A lot of people are afraid they're going to lose their job and afraid to make new commitments," said Straszheim.
Because of the outsized federal budget deficit, Robert Dederick, executive vice president and chief economist of The Northern Trust Company in Chicago, contends there is nothing President-elect Clinton can do to speedily wrest the economy from "the Great Stagnation" that has befallen the country.
"We are nearer to the end of the Great Stagnation than we were a year ago," he said, "but we don't know how near is near." Nevertheless, Dederick projected that "the economy will gather some steam as 1993 goes on," with more gradual firming in 1994.
Seiders said he expected GDP growth to recede in the final three months of this year from the 2.7 percent growth rate reported for the quarter. But "going out further, we can be staging a fairly extended period of above-par (above 2.5 percent) growth," he predicted, and that should help reduce unemployment to 7 percent by the end of 1993 and to the low 6 percent range in late 1994.
Seiders also envisioned gradual improvement for housing production, which should climb to 1.2 million units this year and 1.32 million in 1993. Virtually all of the growth to date has been in single-family activity, he noted, and gains for the multifamily sector are expected to be slight in the next two years as the recovery in the multifamily market has been delayed by high rental vacancy rates and declining rents for new units.
No Quick Fix
The panelists were optimistic about the short-term outlook for interest rates, with Straszheim anticipating one more round of easing by the Federal Reserve "just around the corner." He predicted short- term rates won't begin to rise until there are several months of "amazing growth."
But prospects for long-term rates, which in the range of 7.5 percent to 8 percent are currently significantly higher than they ought to be with inflation running near 2.5 percent, will hinge on what occurs in Washington. A credible deficit reduction plan would produce a massive decline in long-term rates. On the other hand, a quick-fix for the economy would force long rates upward and scuttle recovery.
Straszheim enumerated several structural problems in the nation's economy that "are not susceptible to a quick fix in Washington": indebtedness among consumers and businesses, weakening international trade markets, a broken fiscal stimulus lever in Washington, rising taxes and lower spending by state and local governments, declining defense and commercial real estate industries, and some reorganization of commercial banks.
Focus on 1996
The focus of the Clinton administration will be on the re-election year of 1996 and not 1993, according to Straszheim. He predicted that Clinton would increase taxes on the rich; introduce incentives for savings and investment such as expansion of rules on Individual Retirement Accounts, accelerated depreciation and a capital gains tax cut; and open up serious discussion of a value- added tax on consumption in exchange for a gradual reduction of income taxes.
On the spending side, he said that a Clinton administration would shift priorities to maximize the impact of federal largess on the economy, under such assumptions as investment in education is more productive than defense.
Dederick predicted that by 1996, the economy should favor the incumbent party and sai TW -- DC032 -- 2687 11/04/92 16:52 EST