'89 Economy: a Rerun of '88?
FROM the financial centers of the East to the factories and farms of the Midwest and on to the Pacific Coast, the United States economy continues to expand with no apparent sign of recession. And barring any unexpected economic shock, 1989 looks like familiar terrain - essentially a repeat of late 1988, says David Wyss, an economist with DRI-McGraw Hill Inc., an economic consulting firm in Lexington, Mass. ``The economy is slowing, but there's no reason to call a recession. The US has been going through a `stop-go' expansion the last few years. Now we're in the `stop phase,''' Mr. Wyss says.
DRI expects growth during 1989 in the United States to be around 2 percent, as measured from the end of 1988 to the end of 1989. Inflation will be up slightly, he says, closer to 5 percent than the 4.5 percent of late last year. Civilian unemployment will also climb, but only modestly, to around 5.6 percent by the end of this year, as contrasted with the 5.4 percent jobless rate at the end of 1988.
And Wyss anticipates strong export growth, at about 10 percent, although down from the go-go rate of 18 percent last year.
A minority of economists and financial analysts, of course, believe a downturn will be impossible to avoid. ``We see a very mild recession later in the year, largely stemming from inflationary pressures,'' says Susan Lakatos, an economist with Kidder, Peabody & Co., a Wall Street investment house. ``But in terms of what we went through in the mid-1970s or the early 1980s, it will be barely noticeable,'' Ms. Lakatos says.
Still, such concern is not widespread. ``1989 is going to be very good. The economy is strong, and that means it's going to be good for Wall Street,'' says Sam Siegel, executive vice-president of First Investors Corporation, an investment house here. ``People are going to start coming back to the market. Many stocks are undervalued, and there are bargains out there.''
But even many generally upbeat analysts anticipate overall economic problems. ``We have a decline in our economic model for the last part of 1989, what we call a `struggling adjustment,''' says Albert Sommers, senior fellow and economic counselor with the Conference Board, a business advisory group. What that means, Mr. Sommers suggests, is negative economic growth in the last two quarters of the year, from July through December, as well as the first quarter of 1990.
Sommers says the Board's analysis is predicated on ``increased excise taxes from Washington, no growth in defense spending, a suppression of some other types of federal spending, and lots of debate, but not too much action, about how to deal with the federal budget deficit.''
Slower growth in 1989 is good news for consumers, since it will help moderate the expected rise in interest rates; it also ``benefits the industrial Rust Belt,'' explains Robert J. Kiefer, group director of research for the IDS Advisory Group Inc., in Minneapolis. ``The industrial side of the economy should do well for the next few years. One area of concern that does greatly bother us is the push for bigger and bigger leveraged buyouts. Anything that represents an excess in the economy is a danger point.''
A number of specific sectors look strong, economists say:
Chemicals: The US continues to be a leader in global chemical production, and while more of the same is expected, the pace will likely be slower.
Autos: The weaker dollar should help give Detroit another good sales year. More innovation from US truck and carmakers will also help.
Aerospace: Solid growth. The Boeing Company alone has an enormous backlog. That's cheery news for the Pacific Northwest. The flip side is that defense firms will see some slowdown in the flow of federal spending.
Heavy equipment: A good outlook here, too, thanks in part to the drooping dollar, which makes the industry competitive abroad.