Bush Sees Good Economic News
But labor economists say unemployment, consumer spending will improve only slowly
PRESIDENT Bush, whose low popularity has been directly linked to the poor performance of the nation's economy, was eager to share what he called "good news" when he summoned congressional leaders to the White House this week.
The gross domestic product grew at 2 percent during the first quarter of 1992; Americans' disposable after-tax income edged up an average of 1 percent during both February and March; and consumer spending rose slightly last month.
"There are a lot of other good signs," the president said. "I just hope it continues."
In addition, the government's main economic forecasting gauge, the Index of Leading Indicators, rose a modest 0.2 percent, the Commerce Department said yesterday. The figure, which forecasts economic activity six to nine months ahead, followed gains in February and in January.
But the bases for the income gains appear to be mostly temporary and government-orchestrated. According to United States Commerce Department officials, they reflect federal subsidy payments to farmers, as well as White House orders to speed up life-insurance dividend payments to veterans and to reduce the withholding tax for this year.
The poor job market means low consumer spending, which remains the biggest drag on economic growth. And analysts doubt whether the economy can produce enough new jobs to sustain the recent income gains and increased spending. Labor economists don't expect an appreciable improvement in the country's unemployment picture. March's unemployment rate reached a 6 1/2-year high at 7.3 percent; the Labor Department will release the April figure today.
`The difference between my view and the administration's is that I don't think the past few months' growth is sustainable," says Gail Fosler, chief economist at the New York-based Conference Board. She cites both business and consumer caution. "Businesses are trying to minimize their economic risk," she says. Most medium-sized and large corporations have very limited hiring plans for 1992. Manufacturers are more guarded about producing more than what's necessary to replenish inventories, Ms. Fosler says.
Much of the recession-related corporate downsizing will become permanent and jobs will be eliminated.
Recession-wary consumers are also more risk-averse, despite the Conference Board consumer confidence index, which rose eight points in April, the highest level since September. The higher index "creates more optimism than is warranted," says Fosler. "We used to look at the confidence numbers and determine how consumers [whose spending accounts for two-thirds of economic activity] would react. In the current environment, people are feeling better [about their current economic lot and what the next six mon ths may hold], but they're not taking any chances [with big purchases]," she says.
Job growth can be found among entrepreneurial firms - ranging from $25 million to $2 billion in revenue - that make up a fast-growth portion of the US economy. John Endean, vice president of policy for the American Business Conference, a group of 100 high-growth, mid-sized companies, expects his members to grow in sales, investments, and wages during this year. US firms that invest internationally and explore foreign markets account for most of the new job creation in the US, he says.
Unlike the "king of the hill" big US corporations that are scrambling to maintain their profitability, Mr. Endean says, the ABC-type firms are the wave of America's business future. "They're lean, capital-hungry and very free-trade. They're still climbing the hill."
But with tight credit and a slow economy, successful mavericks are overshadowed by the high rate of business failures. Michael Boskin, chairman of the White House Council of Economic Advisers, concedes that there may need to be a monetary expansion and more available credit to affect economic growth in the "3 percent range" during the second half of the year. Growth at 2.5 percent is essential for job creation, he says.
Mr. Boskin says the nation "has returned to a pattern of growth." Mindful of last year's false starts when the White House prematurely pronounced the recession was over, Boskin says the current indicators involve a combination of healthy economic factors that include: a lower inflation rate, households paying off their debts, and corporations returning to profitability. Dramatic interest-rate reductions have already prompted homeowners to refinance mortgages and save or spend more disposable income.