Masonry Magazine June 1987 Page. 19
theWASHINGTONvire...
ECONOMISTS NOW WORRY THAT BUSINESS ACTIVITY IS TURNING SOFT
Economists now worry that business activity is turning soft again. After performing better than expected during the first few months of 1987, there are signs of slowdown, with many of the key sectors fairly sluggish. Most analysts, to be sure, still do expect to see some degree of expansion in coming months, though the increases in activity will tend to be anemic. But they are expressing fears about the financial and political climate- a climate that they fear can topple the world's economy into a recession.
The latest statistics are not very encouraging. Factory output was down 0.3% in March, the biggest drop in many months. A decline in auto assembly was a major factor, though dips were fairly widespread across manufacturing.
In addition, there were these disappointing statistics:
-Retail sales have been flat, except for gains in autos.
-Housing starts have been edging down, and higher rates for mortgages could foreshadow still more of the same.
-The trade deficit has shot up again, despite a spurt in exports; trouble is, import volume surged by even more.
Capital spending is now providing one of the few pluses. Business has increased its plans to invest in new plant and equipment by 1.8% for 1987-not a robust prospect, but better than a trend of flat or even falling outlays.
FOR THE MOMENT, ECONOMISTS ARE CONTENT with business's performance. They note that the recent softening came after strong early-months' gains. Some also feel some reason for hope for the behavior of merchandise trade. Rising import prices may temporarily be obscuring a favorable trade shift. In other words, price hikes may be masking a dip in the volume of imports.
Net, real Gross National Product-total output of goods and services after inflation-rose at a 4.3% annual rate in the first quarter, a fairly acceptable performance.
NEVERTHELESS, MANY ANALYSTS ARE UNEASY about what the future holds. They can discern a confluence of events that could mean real trouble ahead. Globally, economic expansion has been slowing down for about two years now. Forecasts imply growth for the major industrial nations will slip to 2.3% or even less-during 1987, well below the 3% that's considered the minimum to sustain growing trade, pare unemployment and help the debtor countries.
There is no great spur to growth on the horizon, either. West Germany is faltering, while Japan remains stagnant. Nor can the U.S. come to the rescue, as in the past. Its budget deficit can't be increased to stimulate. And with the dollar falling, the Federal Reserve can't ease money. In fact, officials wonder if more tightening is needed.
THE CONTINUING SLIDE IN THE DOLLAR has been a serious complication. A lower dollar makes U.S. goods more competitive, aiding the trade deficit. But it also tends to slow growth in those countries dependent on exports. And their weakness reduces their appetites for products from this country. Risks are being compounded by the lack of a common strategy among nations.
THE POLICY PRESCRIPTION IS CLEAR, but no one is taking the medicine. To head off further contraction, Germany and Japan must speed up activity, thus increasing demand for U.S. exports and reducing their export volume. And the U.S. must reduce its budget deficit, dampen its consumer spending and spur savings and investment. So far, though, progress has been slow. A continuing slide in the dollar also carries real risks for this country. Foreign investors could cease buying large amounts of Treasury securities. This can push up American interest rates, which have already gone up some. That, in turn, could trigger a recession here-one that spreads worldwide.
Not everyone thinks that such an eventuality is imminent. The probabilities of a world slump are still rated minor. But there is a growing risk of some trouble of this sort, and government officials do not feel they can ignore it.
WASHINGTON DOESN'T SEE A TRADE WAR WITH JAPAN in the months ahead, despite the recent U.S. action in imposing tariffs on electronic products. Reagan acted in response to dumping violations by Japan on semiconductors. Neither the U.S. nor Japan has a wish to become embroiled in a trade war. It serves no one's interest, certainly not Japan's. As the data suggest, the U.S. is Japan's largest market, taking $85 billion a year of its goods.
The U.S. acted to force Japan to live up to its agreements while also increasing pressure to restimulate its economy. Japan is responding with an economic package, although its enactment by the Japanese parliament is still not certain.
A MAJOR TRADE ACCORD BETWEEN THE U.S. AND CANADA seems likely soon. The agreement will eliminate most tariff and non-tariff barriers over time. President Reagan agreed to accelerate the trade talks in his recent visit, after Canadian Prime Minister Brian Mulroney appealed for new negotiations. Canada will insist that it be exempt from American fair-trading statutes. These laws have been used in the past to penalize certain Canadian exports, including shakes and shingles, softwood lumber, steel, fish and natural gas which have been deemed to have been unfairly subsidized by the government.
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