Masonry Magazine December 1986 Page. 25
theWASHINGTONire...
THE ECONOMY'S RECENT PERFORMANCE is rated as only borderline by most economists in government and industry... better than it has been since last winter's end, but not exactly terrific. The latest business figures have been a mixed bag of gains and losses, continuing the sluggish pattern that has endured for over a year now. They do not tell much about the future. Economists are getting a bit edgy now. They want to see a faster pace of activity this quarter at least some promise of a return to solid growth.
The analysts will be watching incoming statistics for clues to the underlying trend-to whether some further stimulation through easier credit will prove necessary.
THE THIRD QUARTER SHOWED a definite pick-up-on the surface, anyway. Real Gross National Product, output of goods and services net of inflation, climbed at a 2.4% annual rate... up from the 0.6% of the April-June period. But much of the strength came from that enormous surge in automobile sales, prompted by those cut-rate, give-away financing rates. To a large extent, the deliveries came from inventory, which cleared the industry's overhang. But the buying didn't boost production; that was actually cut last quarter.
Indeed, there was little improvement for basic industry in the period. Factory output rose less than 0.2% a month, and manufacturing jobs fell 38,000. The trade deficit increased and is pointing to a new peak this year. Business spending for equipment, though, proved to be a modest-welcome-plus.
NET, BUSINESS WAS no great shakes during the July-September period. It certainly did not meet the 4% growth rate the White House has predicted. Significantly, the composition of the over-all increase gives no promise of a healthy follow-through-a satisfactory speed-up-in the months ahead. The current quarter will likely see new acceleration over the third period, but the strength could come at the expense of the opening quarter of 1987. The changes set by the new tax-reform law will serve to encourage spending by consumers and by businessmen during the period up to the end of the year.
Consumers will buy durable goods furniture appliances... even cars... to get the sales-tax deduction that will still be available to year-end. But, then, people will probably pause. They will be loaded up with goods, their savings rate-now at an all-time low-will increase by a little, and their enormous debt burden could discourage further decisions to spend. They won't turn off completely but a new surge is difficult to see.
BUSINESS WILL CAPITALIZE ON the still generous rate of depreciation that can be locked in for, say, car fleets and machinery until December 31. Orders have climbed smartly, especially for computers and office equipment: that is one of the relatively few encouraging forces in sight now for 1987.
Home-building is no longer serving as a locomotive for over-all growth in the economy. Multi-family activity is off because of high vacancy rates and the negative investment implications of the new tax law. And mortgage rates have leveled off recently. Housing construction won't collapse; the current rate is about in line with family formation. But it will not be stimulating.
FUTURE ECONOMIC PERFORMANCE still depends heavily on foreign trade. The hope is that the decline in the dollar will produce the needed result an increase in U.S. exports at the same time that imports from abroad drop. That would give manufacturing-the lagging smoke-stack industries a boost. Note that there were some traces of encouragement during the third quarter, though the trade deficit rose further, it did at a noticeably slower rate. What's more, reports from companies in many areas tell of promising changes in the relationship between the costs of imports and those of U.S. goods.
But the U.S. has been waiting for significant shifts for a long time. It is still too early to determine whether a real turn-around is occurring, one that ends the shift of jobs to other countries and boosts the U.S. economy.
THE FED WON'T HESITATE to push interest rates a step lower, though, if it thinks that the pick-up in the economy won't measure up as expected. It may not even wait for any disappointing figures to actually be reported. A sense that things are not developing as expected would be trigger enough. What are the chances of another reduction in the Fed's key discount rate? Fairly likely, many Washington economists and business analysts would say.
That's because they fear a let-down in business activity during early 1987, as consumers and businessmen wind up their moderate spending spree. If the easing does not come before the end of this year, it could shortly after.
BUT A RECESSION ISN'T LIKELY in 1987, virtually all economists say. Even those who see a need for further credit easing appear to believe this. The stage is not set: the classic ingredients of a down-turn are not there. For one thing, there is no longer a heavy inventory overhang-even of cars. For another, the key areas cited above-consumption, investment, housing-may not be dynamic expansive forces, but they won't be clear drags, either. There's