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First quarter 1990.

First Quarter 1990

According to the March survey of 14 professional forecasters taken by the NBER and the American Statistical Association, real GNP will grow 1.7 percent this year. Inflation, as measured by the rise in consumer prices, will be 4.3 percent. In December 1989 the group forecasted 1.9 percent growth in the nation's output in 1989-90 and 4.2 percent growth in consumer price inflation. In 1988-9 real GNP increased 3 percent, and the consumer price index (CPI) was 4.8 percent.

From Sluggish to Moderate Growth

In 1990:1 real GNP is predicted to rise 1.2 percent at an annual rate, which is considerably lower than the 1.8 percent median forecast from the previous survey. However, growth is expected to return to the 1.8-3 percent range in the four quarters ahead (1990:2-1991:1). Between 1990:1 and 1991:1 total output is expected to gain 2.3 percent.

Expectations of growth have been revised downward slightly for 1989-90 and upward for 1990-1. The following table shows the percentage distribution of forecasts of growth in real GNP.
Percentage 1989-90 1989-90 1990-1
Change December March March
in Real 1989 1990 1990
GNP Survey Survey Survey

4 percent
 or more 7 3 7
2-3.9 percent 33 30 46
0.1-1.9 percent 50 55 38
Negative 10 12 9

Reduced Chances of a Recession

The estimated probabilities of a recession decreased significantly between the last two surveys.
Mean Probability December March
of a Decline 1989 1990
in Real GNP Survey Survey
1990:1 30 20
1990:2 26 22
1990:3 20 16
1990:4 16 16
1991:1 n.a. 17

Unemployment to Change Little

The civilian unemployment rate is expected to average 5.4 percent in 1990:1 and 5.5 percent in each of the next four quarters and for 1990 as a whole. The individual forecasts range from 5.3 to 5.8 percent.

Inflation Forecasts Somewhat Higher

The GNP implicit price deflator (IPD) is predicted to rise at annual rates of 3.4-4.6 percent in the five quarters 1989:1-1990:1, 3 percent for 1989-90, and 4 percent in 1990:1-1991:1. In 1988-89, IPD increased 4.1 percent.

Forecasts of inflation for 1989-90 in terms of the IPD were revised upward slightly from the previous survey and there was a small upward shift in expectations for 1990 and 1991.
Percentage 1989-90 1989-90 1990-1
Change December March March
in 1989 1990 1990
IPD Survey Survey Survey

8 percent
 or more 1 1 2
6.0-7.9 percent 6 6 8
4.0-5.9 percent 42 51 52

Less than

4 percent 50 42 38

The CPI is expected to increase 4.9 percent (annual rate) in 1990:1 and 4.1-4.4 percent in the next four quarters.

Interest Forecasts Also Raised

According to the median forecasts for 1990:1-1991:1, the three-month Treasury bill rate will move in the narrow range of 7.6-7.8 percent. The corresponding forecasts through the fourth quarter of 1990 were 7.1-7.5 percent in December 1989. The annual median interest rate for 1990 is expected to be 7.6 percent, up from 7.4 percent in the previous survey.

The yield in new high-grade corporate bonds is predicted to average 9.2-9.4 percent quarterly and 9.3 percent for 1990 on the whole. These figures are considerably higher than their counterparts of three months ago, which ranged between 8.7 and 8.9 percent.

Small Gains in Real Consumption and Housing

Forecasts of real personal consumption expenditures on the whole are unchanged, indicating growth of about 2.1 percent in both 1989-90 and 1990:1-1991:1. Forecasts of housing starts, like those from the previous survey, show a small rise of only 1.4 percent in 1989-90. Between 1990:1 and 1991:1 the group's predictions imply an increase in housing starts of 2.2 percent. Real residential investment is expected to be almost unchanged in 1989-90, but to gain 2.7 percent between 1990:1 and 1991:1.

Weaker Business Investment

Nonresidential investment (in constant dollars) is predicted to rise 2.4 percent in 1989-90 (less than the 2.7 percent projected in December 1989) and 2.6 percent in 1990:1-1991:1. The range of the individual forecasts for 1990 is 1.2-3.9 percent. Business inventory investment is still generally predicted to remain positive, but most respondents expect it to be mildly lower in 1990 than in 1989. The quarterly figures show quite a bit of velocity and dispersion.

Little Change in the Forecasts of Industrial Production, Net Exports, and Profits

Output of manufacturing, mining, and utilities is forecast to gain 1.8 percent in 1989-90 (an upward revision from the December survey) and 2.2 percent in 1990:1-1991:1. It is expected to fall in 1990:1 and to resume growth in the 2.0-2.8 percent range thereafter.

Net exports of goods and services in billions of 1982 dollars are expected to average -53.5 in 1990 as compared with an estimated -56.3 in 1989. This forecast is only slightly more pessimistic than the last survey.

Corporate profits after taxes are expected to decline 5 percent in 1989-90 but to gain 6 percent between 1990:1 and 1991:1.

Expectations of Government Spending, and Major Assumptions

Federal government purchases of goods and services in constant dollars are expected to decline 0.6 percent in 1989-90, state and local purchases to rise 2.3 percent.

Most respondents assume no significant changes in tax policy; a few assume some tax increases in 1991.

Reductions in defense outlays of up to 5 percent in 1990 and as much as 7-10 percent in 1991 are anticipated by several forecasters.

The growth rates in monetary aggregates are assumed to vary between 3 percent and 8 percent for M1 and between 5 percent and 9 percent for M2.

Most respondents assume that energy prices will be firmer. The quoted prices of oil are $19-22/bbl.

Several respondents assume higher real exports and export prices and stable imports. More participants expect the dollar to decline than to be flat or stronger.
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Title Annotation:economic outlook survey
Author:Zarnowitz, Victor
Publication:NBER Reporter
Date:Mar 22, 1990
Previous Article:Political economy.
Next Article:Tax Policy and the Economy, vol. 4.

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