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Insights into US economic growth

Economic activity picked up in January, but few gains have been made since then. Employment and industrial production have leveled off and personal income has advanced only modestly. Only home sales and construction are sustaining strong growth. Even the index of leading indicators, which gained a strong 1.4 percent in February, is subject to the same ambiguity due to the large influence of M2's rapid growth on the index. With these recent trends in evidence, the Federal Reserve's Open Market Committee most likely remained skeptical about the strength and durability of the recovery. Tighter policy, leading to higher interest rates, would be a deterrent to economic growth at this time. Thus a business cycle perspective argues against a move toward a less accommodative monetary policy.

- Wells Fargo Bank, San Francisco Productivity will probably grow at about 2 percent over the next few quarters. Unit labor costs advanced only 3.5 percent in 1982, as opposed to 6 to 11 percent annual rates in 1981. Mounting evidence indicates that an appreciable portion of the aggressive cost-cutting that took place during the recession was overhead cost and will be lasting rather than temporary. Increased profits and productivity may be possible even with modest expansion. Running at 2 to 3 percent, unit labor costs should set the general trend of inflation.

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- A. Gary Shilling & Co., New York Despite the latest important changes, the consumer price index is still in need of further revisions. Budget cuts have postponed an update of the goods and services contained in the ''market basket'' of the average urban consumer which is based on a consumer spending survey from the early 1970s. No doubt, the quantities and types of products bought by today's average consumer differ significantly from ten years ago. The issue of updating a representative market basket will remain important as the population ages. Medical expenses and utility bills account for a greater share of total spending for older Americans than their younger counterparts. Therefore, at some point in the future, the government should consider publishing statistics for urban consumers stratified according to age brackets. A CPI for older Americans (60+ years) would be a fairer measure to use for indexing social security and other pesnion benefits, even if something less than full indexing is preferred.

- Pittsburgh National Bank The positive outlook for the continuation of the disinflation trend for 1983 has improved further during recent weeks because of falling oil prices. It now appears the OPEC price will drop to $28 per barrel, and that it may fall even lower over time if OPEC cannot agree in new production restraints. The energy component of the CPI is about 11 percent and the gas component is about 7 percent. As a rule of thumb, every $5 drop in the price of oil should ultimately help to reduce the rate of increase of the CPI by a little under 1 percent. Thus, lower CPI levels of 3.3 percent and 3.8 percent in the first and second quarters of 1983, respectively, are expected.

- Dean Witter Reynolds Inc., New York Investors should continue to assume that the long-run uptrend in the stock market is still intact and that is has a lot further to go. The key to success in any bull market is not to get overexposed so that the normal bull market corrections can be easily absorbed and capitalized upon. We feel that a substantial intermediate-sized correction in the stock market is approaching as there are some important warning signs now apparent. Therefore, it is not a time to be overly exposed. By the same token, it is not appropriate to be excessively preoccupied with the approaching correction because the world oil price situation could easily delay it for some time. In the meantime, the uptrend could extend.

- The Bank Credit Analyst, Montreal The policy issues we face today are every bit as challenging as those in the 1930s. The Great Depression governments failed to make sufficient headway in three areas - domestic economic policy, international policy coordination, and international leadership in dealing with global debt problems. While policymakers are confronted with very similar issues today, there is a much greater basis for confidence that speedier progress will be made in these areas and that long-term growth and greater price stability can be restored. Lower oil prices, in particular, will assist in restoring noninflationary growth.

In the United States, economic policies have been moving in the right direction. Restrictive monetary policy has contributed to a sharp reduction of inflation and a favorable inflation outlook. Deregulation has curtailed energy use and dependence on imported oil. Both factors have helped to eliminate structural waeknesses in the US balance of payments and chronic dollar problems in the 1970s.

- Rimmer de Vries, senior vice-president, Morgan Guaranty Trust Company, New York

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