US Economy Awaits Upswing
When recovery takes hold, households and businesses are expected to run leaner
THE Bush administration released some long-awaited good news on the economy this week. The gross national product (GNP) grew 2.4 percent in the July-through-September quarter, indicating that the recession is over.But that news was already stale and somewhat discredited upon arrival. The 2.4 percent showing will be revised over the next two months as new data come in - and will almost certainly be revised downward. Snapshots of a more stagnant economy from the Federal Reserve Board over the past week register more recent trends than the GNP number. The recession is probably over, but clearly the recovery has yet to find a forward gear. Just as the recession itself was shallow, its aftermath is very long, very flat across virtually the whole country. One critical reading for the outlook now is consumer confidence, which plummeted from September to October. The Conference Board index of consumer confidence fell from 72.9 in September to 60.4 in October on a scale that sets 1985 at 100. "These general confidence numbers indicate that the consumer is still in a recession," says Gail Fosler, chief economist at the Conference Board, noting that the reluctance of consumers to buy and spend is a major obstacle to this recovery. Consumers, like businesses, have generally been more concerned with holding down their debts than making major new purchases. The shape and character of this economic cycle is puzzling to many, but when the economy does emerge into full-blown recovery it will be better in some ways. * Manufacturing, which has borne less of the brunt of this recession than it traditionally does, should emerge stronger and more efficient. One key is to keep moving toward trade balance by holding the federal budget deficit under control, explains Martin Neil Baily, a Brookings Institution economist. * Although federal deficits have soared because of the recession - some estimates run as high as $350 billion for the current fiscal year - the underlying deficit, adjusted to standard employment levels, is slowly working downward. Some of the new tax-cut proposals could scotch that. * The troubled banking industry should come back "more consolidated, [with] lower employment, and hopefully more efficient," says Mr. Baily. * Households and companies will be running leaner, with less debt compared to income. Debt in the private sector is growing at the lowest rate in 40 years, says Ms. Fosler. * Earnings, both in worker paychecks and corporate profits, will be higher per unit of growth, she adds. Toward the end of the 1980s expansion much of the economic growth was adding little or nothing to earnings. The wait for a certifiable recovery is making politicians visibly and suddenly jumpy about finding ways to stimulate the economy. The next general election day is a year away - a long time in campaign politics. But the calendar is compressed at both ends. First, the views of voters tend to solidify a few months before election day. Second, any policy action geared to improve economic conditions before midsummer needs to be initiated soon. The economy may well rebound of its own accord by mid-1992. This is probably the mainstream forecast. But at least a few economists, such as Fosler, believe the stagnation is likely to continue through 1992. Already, unless growth springs forth phenomenally next year, Bush's first term will contain by far the lowest average annual economic growth of any presidency since World War II. But, says Donald Kinder, a political science professor at the University of Michigan who has researched the link between the economy and voting behavior, "I think it's a little early for Republicans and incumbents generally to be anxious." Even early in a campaign cycle, he notes, poor economic conditions can affect congressional elections. Economic discontent can lure stronger candidates out to challenge incumbents, even if it happens too early to affect voter behavior. In fact, Republican Party chairman Clayton Yeutter noted at a Monitor breakfast last week that he is seeing more interest in pursuing House seats among GOP candidates than ve ever seen in my lifetime." The numbers will remain a little vague, however, until House district lines from the new census count are final. Mr. Yeutter did not attribute the high Republican interest to the state of the economy.