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A Bull and a Bear Clash on US Outlook

SOMETIMES it sounds like economists Lawrence Kudlow and Philip Braverman are talking about different countries. But they are both analyzing the United States economy.

Mr. Kudlow, of Bear, Stearns & Company, New York, forecasts "a stronger economic growth rate over the next four quarters than almost anyone thinks possible." He predicts a real 4-percent annual growth rate for national output with a 4-percent inflation rate pushing the nominal growth rate to 8 percent.

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Mr. Braverman, of DKB Securities Corporation, New York, sees a "feeble recovery" ahead. He expects a real 2-percent or less growth rate for gross domestic product (GDP) this spring and summer, rising to perhaps 2.5 percent in the final quarter of the year. That, he says, is his "optimistic" outlook.

"The economy might slip back into recession by the second quarter of 1994," he adds.

Braverman has a reputation for being an economic bear. Kudlow, a supply-sider who was chief economist in President Reagan's budget office, has been more bullish on the economy.

As brokerage house economists, the two are in effect selling the services of their firms to mostly institutional investors - mutual funds, bank trust departments etc. These investors hope a range of views on the economy will help them make better investment decisions. The brokerage houses expect some investment business in return for the views of these economists. Their analysis often includes some view on prospects for interest rates - certainly a key piece of information for bond buyers.

But if investment managers relied on only these two for an economic outlook, they might be wracked by indecision. The economy also has not been much help. GDP showed vigor in the final quarter of 1992 and lethargy in the next quarter.

The employment numbers came out a week ago. Kudlow cheered: "The strength of Friday's employment report took most everyone by surprise, and it signals a more normal recovery pace of 200,000 jobs per month, pointing toward the creation of 2.5 million new jobs this year. In fact, for this year already, the private economy has produced almost 1 million new jobs, the equivalent of more than two Clinton stimulus packages."

Braverman is skeptical. He says it is "nonsense" that the numbers show the economy is strengthening. "True, the employment rate declined to 6.9 percent from 7 percent. And there was a sizable nonfarm payroll gain of 209,000 in May. But this increase can be entirely attributed to a rise in part-time work."

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Another survey - of households rather than payrolls - shows a 457,000 increase in part-time workers that, Braverman argues, "suggests permanent nonfarm jobs plunged by more than 248,000 in May." He also notes that the Bureau of Labor Statistics, in compiling the payroll data, adds 80,000 per month to the numbers to reflect the presumed hiring by small business. But the Bureau does not actually survey those small businesses.

Kudlow prefers to note the "whopping" increase of 857,000 jobs in May shown by the household survey.

Braverman sees the 296,000 May jump in nonagricultural, newly self-employed workers as an indication of "job loss, under-employment, and absence of good job opportunities." For example, some laid-off managers, out of desperation, are starting up consulting businesses, he says.

Kudlow welcomes the growth in self-employment as an "important measure of [a rise in] entrepreneurial activity."

Braverman notes that a 0.6 percent rise in average hourly earnings in May is limited to full-time workers and doesn't reflect the earnings decline of part-time or self-employed workers. Kudlow cites that hours worked rose 0.4 hours per week in May.

And so the debate goes on. Braverman won a point when first-quarter GDP numbers were revised down to a 0.9 percent annual rate. Even that low rate, he says, was inflated by a Department of Commerce calculation that a drop in prices pushed up a nominal $2-billion increase in sales of computer and other information equipment to $10.2 billion in real terms. Without that and another similar adjustment, GDP would have grown at only a 0.2-percent annual rate, he figures.

Is the economic bear a better forecaster, or the economic bull?

It's not yet decided. Watch the statistics in months ahead.

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