Reagan's top economist upbeat. Sprinkel sees growth rebound, further decline in interest rates
Despite the economy's recent disappointing performance, President Reagan's top economist remains confident a rebound is just around the corner. Many private economists agree a rebound from the current lackluster growth pace is likely, but there is disagreement over how strong the growth spurt will be.
``The prospects clearly point to further significant economic expansion. Lower oil prices, lower inflation prospects, lower interest rates, higher equity prices are all positive factors for the outlook for '86 and subsequent periods,'' said Beryl Sprinkel, chairman of the President's Council of Economic Advisers.
But those bright prospects have been obscured by a flurry of disappointing economic statistics. In February, new home sales dropped and orders for manufactured goods fell. March unemployment was down a bit from the previous month but was still a high 7.2 percent. And auto sales crumbled in March to a 7 million monthly rate, far below the sales pace in January and February.
``Recent economic readings are disappointing,'' Merrill Lynch chief economist Donald Straszheim says.
Presidential economist Sprinkel is undisturbed by the spate of disappointing numbers. ``Our confidence about our initial forecast has risen since it was made several months back,'' Dr. Sprinkel said in a speech Thursday at the US Chamber of Commerce. One reason for his confidence is that Sprinkel expects further reductions in interest rates ``in days ahead.''
In its budget for fiscal 1987 the adminstration predicted inflation-adjusted economic growth of 3.4 percent in 1986 vs. 2.2 percent last year. Growth of around 3 percent is needed to keep the number of jobless workers from rising.
Sprinkel's optimism is not universally shared.
Jerry Jasinowski, chief economist of the National Association of Manufacturers, sees a weak first half with the economy growing at a sluggish 2 percent pace. Activity will pick up in the second half, but for the year as a whole the economy will grow only a sluggish 2.4 percent, he says.
Despite lower oil prices the US is not entering ``a golden new era,'' Mr. Jasinowski says. Growth in 1986 will be limited by a variety of factors, he says, including ``the buildup in consumer debt, falling activity in oil and farm states, (and ) the fiscal restraint associated with deficit reduction,'' he argues.
Sprinkel sees some clouds on the horizon. He predicts the 1986 trade deficit will be ``not too much different'' from the record deficit set in 1985. The slow progress is because the effects of the dollar's fall will be felt only with a lag.
The President's chief economic adviser, who grew up on a farm, admits the farm sector will see ``only modest improvement'' in its serious problems.
And until it becomes clear where the oil market will stabilize, ``it's hard to get a handle on the damage to the nation's energy producers,'' he said.
Other forecasters see an even brighter outlook than Sprinkel. Richard Rahn, chief economist at the US Chamber of Commerce, predicts growth of 3.5 percent for the year.
``What you are going to find is a speedup of each additional quarter through the year,'' he says, with red-hot growth in the final quarter of ``well over 7 percent.''