Rapid pickup in recovery indicators catches economists unawares
A recent flurry of good economic news - on energy prices, home construction, business inventories, and a bevy of other statistics - has sent economists scurrying to revise their bleak forecasts for business activity in 1983.
But one month of positive statistics does not mean a robust recovery is in sight for American industry, forecasters warn.
''This recovery is getting off the mark faster than most of us anticipated,'' notes Edgar Fiedler, vice-president of economic research for the Conference Board, a business research organization. ''But we don't want to take the better news of the last two weeks without some caution.''
''We are looking for 4 to 5 percent annual growth,'' says Steven W. Dobson, Bank of America vice-president and senior economist. ''That is still below (the 6 to 7 percent rate considered) normal, but above what people have been looking for.'' Until recently the Reagan administration was forecasting only 3.1 percent growth in 1983.
As a result of faster economic growth, predictions for corporate profits have been raised. A rebound of 20 to 30 percent above 1982's depressed levels ''makes sense,'' says David Munro, a General Motors Corporation economist.
The snapback in profits will be contained by continuing caution among shoppers, despite January's reported uptick in consumer confidence. And an expensive dollar and worldwide recession mean US exports will be extremely weak in 1983, economists say.
As a result, US firms are expected to end the year with 30 percent of their productive capacity idle. ''The rate of capacity utilization is extremely low and will remain relatively low through 1984 and 1985, even given the faster-than-expected recovery,'' says Robert G. Dederick, assistant secretary of commerce for economic affairs.
With large portions of their plants idle, firms will not be in the mood to spend freely on new equipment. ''Capital spending will be off 6 percent'' from 1982's estimated $320 billion rate, says Walter Dolde, senior economist with A. Gary Shilling Inc., a forecasting firm.
A weakness in capital investment will be one of the factors depressing US productivity growth. ''It means there will be less capital'' for machinery for workers to use, notes Frank Cooper, an economist with Wharton Econometric Forecasting Associates. Productivity measures how efficiently workers can produce goods.
Nevertheless, nonfarm productivity is expected to grow faster than last year's sluggish 0.1 percent rate. ''I expect a 1 or 1.5 percent'' increase, says Carl Thor, vice-president of the American Productivity Center in Houston. He sees productivity growth being held down by a sluggish increase in economic output.
Mr. Thor expects US trading partners to continue to chip away at the US lead in productivity. ''Between 1984 and 1986, a 2.0 percent gain in productivity would be good for the US. I think you will see France, Germany, and Japan in the 3 to 4 percent range'' as a result of faster momentum in factory modernization, he says.
When US firms do decide to speed up capital spending, there should be a large pool of individual savings they can borrow from to pay for the tools. The savings rate, which recently has been running at about 6.1 percent of income, is expected to rise in 1983.
''As incomes rise during the recovery it will grow faster than the spending that takes place,'' says Lief Olsen, chairman of the economic policy committee at Citibank.
During 1983 the savings rate ''could flirt with 8 percent,'' Mr. Dolde says.
Consumer behavior is still seen as the factor determining the pace of the recovery. ''The consumer is still the driving force,'' says Bank of America economist Dobson.
And shoppers are expected to remain cautious in their buying habits, despite the recent round of good economic news. ''There is an increasing fragility of expectations. People want to hunker down more than they used to, given all the economic problems they have experienced,'' says Wharton economist Cooper.
To move the economy beyond what he terms a fragile recovery, ''I'd like to see the consumer become a more aggressive borrower and spender for nonautomotive'' purchases, says Commerce Department official Dederick.
And in fact the consumer is even sending mixed signals to the auto industry. In the second 10 days of February auto sales fell to a seasonally adjusted rate of 5.6 million after hitting a 6.2 million rate in the first 10 days.
Given the uncertain pattern of consumer behavior, manufacturers are expected to be cautious about rebuilding inventories. In the fourth quarter of 1982 manufacturers ran down their inventories by about $17 billion dollars. The expectation that firms will rebuild inventories is one factor behind the increased forecasts for economic growth.
However, ''clients in several industries say they are going to take a wait-and-see attitude before restocking. Most are trying to match production to sales. And indeed, in some consumer areas there is no inventory,'' Mr. Dolde says. He cites major consumer appliances as an example.
With US exports lagging, the domestic consumer is especially important. ''The present value of the dollar severely undercuts the competitive position of our exports in the world market,'' says Conference Board economist Fiedler. Most economists expect the US to post a 1983 deficit in merchandise trade of between
However, Citibank economist Olsen contends that the lower cost of oil imports may trim the trade deficit so that it does not top $50 billion to $55 billion.
Despite the trade problems, a growing number of business people are optimistic about the economy. Richard Rahn, chief economist of the Chamber of Commerce of the United States, notes, ''we have been fairly optimistic all along. Now it is an optimism more and more people share.''