Clouds Over US Economy Show Some Signs of Lifting
SPURRED by good economic news, the debate is on about whether the pace of the United States recovery is quickening and if President-elect Clinton should alter his costly plans to spur activity in the short term.
Personal incomes rose 1 percent in October, posting the largest gain in 10 months; consumer spending edged up 0.7 percent, enough to boost retailers' hopes for a lucrative Christmas season.
This comes on the heels of the Commerce Department's revised figures for 1992's third-quarter growth in the gross domestic product (GDP) - the nation's output of goods and services - which reached 3.9 percent, up sharply from the estimated 2.7 percent.
But assessments of the new data from the outgoing Bush administration and the incoming Clinton administration were measured.
Michael Boskin, chairman of President Bush's Council of Economic Advisers, stressed last week that true economic recovery will transpire only when there is a marked rise in new jobs.
Mr. Clinton said he may re-evaluate the need for an immediate economic-stimulus package, which economists have estimated would require $30 billion to $50 billion in new government outlays.
Clinton's assistant director for communications, George Stepha-nopoulous, stressed the need to attend to the country's economic ills. "Even the most hopeful signs we see right now are mixed" with a host of negative factors, he said, including high unemployment claims and lower new-housing starts.
Housing, which has often led economic recovery in the past, has been sluggish. "With the housing industry still operating well below capacity, tapping this tremendous source as part of an economic-growth program is a key test for the incoming Clinton administration," says Robert Buchert, president of the National Association of Home Builders.
The nation's nagging unemployment rate, however, is what most analysts say is preventing a robust rebound, and the chief reason why a stimulus package is needed. Clinton has promised that job creation will be the centerpiece of his economic program and his first priority.
Consumer confidence rose almost 20 percent in November from 54.6 in October. But observers, who agree on its importance, are uncertain whether it can be sustained.
Two-thirds of economic activity is based on consumer spending, which is determined largely by Americans' confidence in their own job prospects and their outlook on the economy. Some economists assert that a robust Christmas buying season could have a positive impact on economic data and even employers' future hiring plans.
But the National Federation of Independent Business reported in its recent sampling of 600,000 members that they expect "declining sales and worse times ahead." Hiring plans of small firms (which provide jobs for half the nation's private work force) has increased slightly, "but not enough to indicate any improvement in unemployment over the next six months."
The US Chamber of Commerce has also reported a plunge in its most recent index of business confidence, "a sure sign that businesses will continue to cut costs to the bone and hold back on significant new investment spending," said Lawrence Hunter, the chamber's chief economist.
Sen. Joseph Biden (D) of Delaware wants the new administration to adopt legislation he has already introduced for an infrastructure-based fiscal stimulus. Mr. Biden argues that the economy lacks sufficient momentum, and challenges those who caution against spending government money to spur economic activity.
Broad-based, large-scale job losses - due to corporate restructuring and leaner business strategies - will not be reversed by an upturn in the US economic cycle, Biden says. He calls for federal funds channeled to state and local governments to be matched by local funds and to be spent on public-works projects that have been put on hold because of budgetary constraints.
Under the Biden plan, politicians' pet projects would not qualify. Instead, investments would be made on the basis of local unemployment and projected economic benefits. As soon as a targeted lower unemployment rate is achieved, the investment program would end.
Others who worry about increasing the federal deficit support a more modest approach. Sung Won Sohn, chief economist of the Minneapolis-based Norwest Corporation, says "an economic stimulus program of modest or cosmetic proportions is needed to help lift consumer confidence and spending in 1993. A more significant ... package would hurt economic growth because the already high budget deficit would grow and interests rates would go up."
Members of the inflation-wary Federal Reserve Board have also indicated that a modest package would be acceptable.