Mutual fund economist says base has been laid for sustained recovery
If Ben E. Laden is typical of economists advising institutional investors, there is good reason for the stock market boom.
Every year Dr. Laden, chief economist of T. Rowe Price Associates, takes a longer-term look at the prospects of the US economy for the benefit of the investment managers in his $14 billion mutual fund group. His view is highly optimistic.
Rising consumer income, reduced business inventories, and lower interest rates, he says, should soon put the economy on a recovery path. He forecasts a moderate 3.5 percent annual growth rate in national output during 1983 and 1984.
And here is the especially cheery outlook: ''The groundwork has been laid for a recovery that can be sustained longer than in typical cycles. In addition, the leverage of possible growth could be surprisingly strong in the mid-1980s.''
Dr. Laden has become more confident than even a few months ago that the United States will stick to an anti-inflationary path. As a result, ''there will be better opportunities to achieve the full growth potential of the US economy.''
He sees a pattern developing over the next few years of strong investment spending, good productivity growth, increasing consumer income, and rising corporate profits. Individuals and business will have greater incentives for saving and investing.
Indeed, Dr. Laden talks of ''fast growth'' after the next two years - ''a period of real prosperity.'' And he expects inflation to stay in the 5 to 6 percent range into 1984. The inflation outlook beyond 1984, he says, depends on whether growth of government spending is reduced and also on how quickly wage trends adjust to lower inflation.
This new economic environment, he says, should be favorable for investors. ''Declining inflation implies that financial assets, such as bonds and stocks, will outperform tangibles and inflation-hedged investments that performed so well in recent years.''
Here are some other important long-term trends Dr. Laden sees affecting the industry outlook over the next five to 10 years.
* Rapid growth in the numbers of those 25 to 44 years old, 60 and older, and, due to a small baby boom, zero to five.
* Decline in the 10-to-24 and 50-to-59 age groups.
* Increasing number of two-income families.
* Decrease in average family size.
There will be slower growth of real income per worker, but a continued advance in discretionary income per household due to the effect of smaller-size families, more income earners, and higher average-income levels.
Because of the population's age structure, housing demand should peak by 1988 unless delayed by financing problems.
There should be an emphasis on high-quality durable goods and new products.
Spending on luxury goods, consumer services, and consumer electronics, including home computers and home video systems, should grow rapidly. Also thriving will be financial services for the individual because of increasing wealth, high taxes, the age profile, and a growing preference for savings.
There will be an emphasis on energy-saving equipment and supplies.
* The US has had slow growth of real productive capacity for a decade.
* Ratio of capital investment to labor has declined since 1975 as the labor force grew rapidly.
* Labor force now set to grow more slowly.
* Rise in energy prices has made much of existing capacity obsolete.
As a result, business will be emphasizing labor-saving and energy-saving equipment. However, spending for expansion will be subdued for several years.
* Defense spending growing.
* Transfer programs (such as welfare) are maturing; future increases should be more in line with growth of national output.
* Health expenditures still growing rapidly, but at lower rates than in the past.
* Education expenditures will decline in real terms because of drop in student population.
* Tax structure becoming less progressive.
From an investment standpoint, defense will be a high-growth area for years, with many programs moving from development to production stages. Defense export markets are large and likely to grow rapidly under the Reagan administration. Military electronics will grow quickly as new technologies are incorporated in weapons systems.
Those are just some of the long-term prospects now titillating investment managers.