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Talk of recession overstated.

Talk of recession overstated

Daily we hear economists forecasting a recession; it's one of the dominant subjects in both print and electronic media. In the wake of all this talk, there is one economist who has a more favorable outlook regarding our economy.

William Copeland, president of Copeland Economics Group Inc, believes that much of the talk of a recession is "overstated by the media." Mr Copeland believes that there are "a lot of journalistic attempts to catch the eye" in reports about a possible recession.

Continuing that train of thought, he points out, "All of the talk of a recession overlooks the fact that we still have a fully employed economy and we don't have inventory problems as an Achilles heal." Although Copeland has revised their forecast since the Middle East crisis began, it still forecasts a growth rate of 1% for 1991.

Consumer alignment

Central to the Copeland forecast is the fact that consumers have been realigning their savings and spending priorities for almost two years. This scenario may bode well for the capital goods sector, which lags the consumer sector by about six to nine months.

"Consumer savings rates hit an abnormally low level of 2% in 1987, but have since rebounded to 5.5% to 6%, which is close to post-World War II levels," says Mr Copeland. While consumers save more, they have also become more cautious in their use of credit. "In 1985, the rate of personal credit utilization was running at 15% to 20%. Today, it's running about 2%."

Mr Copeland concedes there may be a "temporary disruption to the consumer psyche," and growth will almost certainly slow in the next two quarters. "But the economy is not out of shape employment-wise, monetary-wise, or inventory-wise."

Financial consolidation

"We had expected 1990 and 1991 to be a period of economic and financial consolidation," says Mr Copeland, "because of excess spending and the deficit question. We have already had tight money for 2 1/2 years, and it's unlikely it will get any tighter even with inflation being higher."

Mr Copeland expects the government to adjust its defense and deficit-reduction packages. "Rather than having sharp curtailments in spending, they will tend to be smaller and rolled through several years."

The capital goods sector also has been consolidating to become competitive in global markets. "American industry is in a structural cost-catch-up mode as opposed to building more capacity. As they catch up structurally and cost competitively to what's available offshore, they will be in a much better position."

The group's long-term forecast is generally favorable for the capital goods sector. The group expects '91, '92, and '93 to be positive, barring a catastrophe such as $50/barrel oil prices or a long standoff in the Middle East.

"If oil settles down at $23 to $25 a barrel, we may see some slowing in spending," Mr Copeland says. "But I think the net tradeoff will be on the plus side." Mr Copeland believes that oil prices must reach this level to achieve stability in the Middle East. Additionally, "a lot of smaller US wells need about $23/barrel to get cranked up," Mr Copeland explains.

As the Middle East crises creates global uncertainties, Mr. Copeland admits that there are many negative connotations. But he firmly states, at this point, it's "not negative enough to say we are going to have three or four quarters of negative GNP experience."
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Title Annotation:William Copeland's forecast
Publication:Tooling & Production
Date:Oct 1, 1990
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