A stronger recovery ahead, top government economist says
The economic rebound projected for 1983 ''could be'' stronger than current Reagan administration forecasts, says Robert Ortner, the Commerce Department's chief economist.
The administration has reportedly been basing its budget planning on the expectation that for 1983 as a whole the gross national product, or total output of goods and services, will be up 1.4 percent over last year.
Over the weekend, Treasury Secretary Donald T. Regan predicted ''a decent recovery, slow at first, but certainly getting very stimulative in the third and fourth quarters of 1983.''
From the time forecasters began estimating GNP for the final quarter of 1982 to the release of preliminary figures last week, ''there was a considerable change'' in the economy, Mr. Ortner says.
''There was much more consumption and inventory liquidation'' than government forecasters had anticipated.'' As a result, he said, ''inventories are considerably leaner than we assumed.''
When companies cut back on the amount of goods they store, it brightens the outlook for the economy. That is because the lower a company's inventory levels, the more likely it is to have to increase production to meet an upturn in sales. In the final quarter of '82, businesses reduced inventories at a $38.5 billion annual rate, a postwar record.
Meanwhile, there are signs that two key industries - housing and autos - are on the road to recovery. During the final three months of 1982, auto industry sales jumped 16 percent, compared with the same quarter of '81. November and December car sales were the strongest since the recession began late in the summer of 1981.
''The car companies plan for a 20 percent increase in production'' in the first quarter of this year, Mr. Ortner notes.
New-home sales exploded in November, rising 47 percent as mortgage rates fell. In December, builders started homes at a 1.2 million rate, down from November's 1.4 million pace. The decline was attributed to bad weather and other factors. But starts in December were still up some 35 percent from a year earlier.
''Finishing the year at a 1.2 million rate was higher than [forecasters] had been looking for,'' Mr. Ortner comments.
Since the administration's economic estimates will not be formally released until later this month, he would not provide a precise forecast for economic growth this year.
But he is not alone in thinking it could be somewhat higher than the 1.4 percent figure the administration is reportedly using. The average prediction of 45 economists polled this month by Robert J. Eggert of Eggert Economic Enterprises predicted a real 1983 GNP 2.5 percent higher on average than last year. ''As we see it, the White House is taking too dim a view of economic growth,'' comments Economic Week, a newsletter published by Citibank.
Mr. Ortner notes that ''there are two large question marks'' concerning the economy's performance in 1983. The problem areas: exports and capital spending.
The United States could import some $60 billion to $80 billion more than it exports in 1983, Mr. Ortner estimates. That would dwarf the expected $45 billion merchandise trade deficit recorded last year.
According to estimates from the Washington-based Institute for International Economics, the trade deficit will reduce real 1983 GNP by up to 1.5 percentage points.
''Two special conditions not typical of this stage of the business cycle'' are to blame for the trade deficit, Mr. Ortner says. They are ''the high dollar and the financial problems of other countries'' with which the US trades.
A recent weakening of the dollar should help the trade picture, forecasters say. ''The recent rapid drop in the exchange value of the dollar (amounting to 5 percent on a trade-weighted basis since early November) should help in time to slow the decline in this country's net trade position,'' says the current edition of The Morgan Guaranty Survey, an economic newsletter published by Morgan Guaranty Trust Company.
Economic conditions abroad continue to look gloomy, however. The six major overseas industrialized nations (Canada, Japan, France, Germany, Italy, and the United Kingdom) are expected to grow more slowly than the US.
''Moreover, forecasts of a European recovery are being steadily revised, with a moderate rebound now not considered likely until well into 1983,'' notes Business Review, a newsletter from the Wells Fargo Bank.
Ironically, the US economic recovery could hurt the nation's trade picture. ''It may bring up imports, but that depends on the [value of the] dollar at the time,'' Ortner says.
At the same time, the outlook remains bleak for business spending on new plants and equipment. The latest Commerce Department survey indicates companies will cut their capital spending this year 5.2 percent, after adjusting for inflation. That reduction is hard on the heels of a 4.8 percent decline in 1982. Since the companies used only 67 percent of their capacity in December, a postwar low, there is little incentive for them to invest in new facilities.
Although Reagan administration measures to boost business investment have so far failed to set off a capital spending boom, Mr. Ortner defends them. Capital spending ''could have been considerably worse without the administration program ,'' he says. ''And when the economy turns up, we will see a stronger recovery [ in the capital goods sector] than we otherwise would have gotten.''