No recession fears, but economists lower their growth forecasts
Private economists are lowering down their growth forecasts for 1987. Some doubt consumers will continue to pull out their wallets, while others say the trade deficit will continue to sap the nation. While a recession is still considered doubtful, few agree with government forecasts of an expanding economy next year.
More typical is the view of Harold Rose, economic adviser to Barclays Bank, who sees ``a droop, not a drop.''
The economic downshifting showed up this month in the consensus economic forecast published by the Blue Chip Economic Indicators, which polls 52 economists. In October, the economists predicted the economy, as measured by the gross national product (GNP), would rise by only 2.7 percent instead of 2.9 percent predicted in September. While the 0.2 percent drop is not large, it is indicative of the darker mood enveloping the economy.
Private economists did not expect the report last Thursday by the Commerce Department that durable-goods orders rose 4.9 percent in September to make that much difference.
``You really can't read anything into one month's numbers, especially with all the revisions,'' comments Charles Reeder, a Wilmington, Del., economist who was formerly chief economist with DuPont.
Economist Richard Karfunkle, who heads up Econoviews International, a Pennsylvania economic consulting firm, is among those who have lowered expectations for next year.
In October, Mr. Karfunkle dropped his growth forecast from 3.9 to 3.1 percent. Like many economists, he does not see a speedy reversal in the trade deficit. He doesn't expect the dollar to go much lower versus the yen or the West German mark. A lower-valued dollar makes US goods more competitive.
Mr. Rose of Barclays points out that the US cannot expect to sell more goods to the less-developed countries (LDCs) because of the LDCs' balance-of-payments problems. At the same time, the Japanese will not import much from the US because of a restrictive agricultural subsidy policy, and the Germans are committed to keeping inflationary fires banked, which means a slow economy. In Germany, Rose points out, any inflation above 2 percent annually is considered too high.
Still other economists, like Tim Sullivan of Arnhold and S. Bleichroeder, an investment banking firm, have lowered their forecasts because of the success the auto companies have had selling new cars with low-cost financing incentives. ``They've stolen car sales from next year,'' Mr. Sullivan explains.
The cut-rate auto financing was the final ``nail in the coffin,'' maintains Stephen Roach, an economist with Morgan Stanley & Co., an investment banking firm. Mr. Roach recently lowered his growth estimate for next year, figuring the GNP would grow at a scant 0.8 percent in the first half and only 1.8 percent for the whole year.
``The consumer has been on an unsustainable buying binge,'' he says. ``I think things are starting to crumble.''
Not everyone sees the economy deteriorating. In a pre-election speech Saturday, President Reagan said America's economy ``is solid and accelerating again.'' In addition, Mr. Reagan, says Wall Street economist Peter Bernstein, raised his forecast from 3.7 percent to 4.4 percent. The University of Michigan also hiked its prediction from 2.9 percent to 3.6 percent.
Bob Christian, chief economist for Provident National Bank, believes too many economists are ``throwing in the towel too early.''
Mr. Christian, sticking to a forecast of a 3.5 percent growth rate for GNP says Federal Reserve Board stimulus and the lower-valued dollar will help.
``It's not going to be a sparkling year,'' he comments, ``but you have to remember that in times of disinflation and a slow population growth, 3.5 percent is not bad.''
Most economists still believe the economy will not slide into a recession. But Martin Mauro, senior economist at Merrill Lynch, raised the odds of a recession from only 10 percent to 20 percent after he lowered his growth forecast for 1987 to 1.7 percent from 3 percent. ``The risk is out there,'' he concludes.