Many economic signs suggest recovery will continue strong
Many brokerages, banks, and economic-research firms publish periodic newsletters on economic trends. As a service to readers, and without endorsing any particular views, the Monitor presents excerpts from some of these newsletters.
The most encouraging communique from the front lines of recovery was the report on May sales of major retail chains. The healthy percentage increases over the same month of 1982 were all the more impressive because, on a seasonally adjusted basis, sales were higher in real terms last May than they were in any other month of 1982. It was also significant that the strongest gains this May centered on sales of furniture, appliances, and durable goods. In addition, auto sales swelled to a 6.7 million-unit seasonally adjusted annual rate in May, up from a 6.3 million rate in April and the best showing this year for domestic car manufacturers.
-Citibank, New York
The consumer is poised for a spending boom. Until April, the real growth of disposable income was based more on changed expectations than on changed incomes. But for the rest of this year, income growth will accelerate sharply, boosting consumer spending further. Payrolls are likely to grow, even farm income will show some modest recovery, and proprietors' income and dividends and interest are likely to improve. But most important, the third stage of the President's tax cuts will lower withholding schedules by over $30 billion (annual rate) in July, and there will also be a small boost of social security benefits. Combining these positive factors produces a projected real income growth averaging 5.4 percent for the next four quarters.
- Data Resources, Lexington, Mass.
The strength of consumer activity, the rebuilding of inventories, and the continued strength in housing all should contribute to good increases in economic activity for this quarter and next. Nonetheless, real (interest) rates remain quite high, and we anticipate only modest declines throughout the remainder of the year. Real rates are currently adversely affecting our net export position, and we expect that, without further rate declines in 1984, housing and other interest-sensitive sectors will plateau. Housing, in fact, has already tempered its pace.
- E.F. Hutton, New York
Somewhat ironically, the (stock) market seems to have reached the point where the stronger the economic news, the less inspiring is stock action. There is, of course, good historical precedent for this sort of pattern after the first good upleg of a bull market such as we have just experienced. Witness the July 1975 interim top under similar circumstances when everyone finally realized recovery was under way and there was no one left to impress. Remember, it is for very good reason that the stock market itself is one of the leading- indicator components.
- Dean Witter Reynolds, New York
One can almost see the recovery spreading throughout the country. Since the economy's driving forces at the moment are the housing and auto industries, states dependent on motor vehicle, steel, and lumber production have been the first to feel the improvement. For the nation's industrial heartland, which suffered a severe blow from the 1981-82 recession on top of its earlier decline, these developments bring a good measure of cheer. The region, which is believed to encompass Indiana, Illinois, Michigan, Ohio, Wisconsin, and Pennsylvania, produces half of the nation's cars and trucks, two-thirds of its steel, more than one-quarter of all manufactured durable goods, and 60 percent of the country's machine tools.
- Manufacturers Hanover Trust, New York
It's often said that the US has become less and less competitive in the capital-good industries. Yet, in fact, the US runs a sizable trade surplus in nonautomotive capital goods - a surplus that averaged about 1 percent of gross national product in the 1960s, then climbed persistently in the 1970s to average about 11/2 percent in the past few years. An item-by-item review of the Commerce Department figures on specific categories of capital goods bears out the generalizations about US advantage in high-skill, research-intensive industries. The most sharply rising trends in the trade balance, as a fraction of GNP, are to be found in computers and other office-type machinery and scientific and professional equipment. In every one of these segments, imports rocketed upward in the 1970s and early 1980s, but exports soared even more.
- Citicorp Economic Forecast Service, New York