Increased Growth Signals Rebound For US Economy
ECONOMISTS may begin to ratchet up their forecasts for the United States economy in 1993.
The upward revisions are expected because the economy ended the year 1992 at its best pace in the last five years. On Friday, the Commerce Department revised upwards its estimate of fourth-quarter gross domestic product (GDP), the sum of all goods and services. Commerce now reports the economy grew at a 4.8 percent annual rate, up from an earlier estimate of 3.8 percent.
"Forecasts will be revised upward if for nothing else than the fact the economy is starting off the year at a higher level," says Bob Dederick, chief economist at Northern Trust Company. Mr. Dederick has recently revised his estimate of 1993 growth from 3 percent to 3.5 percent.
Bob Eggert, editor of Blue Chip Economic Indicators, says the stronger numbers will cause him to raise his personal estimate of 1993 economic growth from 3.1 to 3.2 percent. "We're showing a bit more optimism," Mr. Eggert says. Blue Chip will poll its 50 economists this week and will release that poll on March 10.
The Commerce Department numbers paint a picture of an economy buoyed in the last quarter by much more confident consumers, increasing US exports, and surging housing starts.
Whether the consumer will continue spending at that rate remains open. "The consumer will continue to spend but not at that pace - the income is not there," predicts Cynthia Latta, senior financial analyst at DRI-McGraw Hill. DRI recently increased its estimate of first-quarter economic growth by 0.5 percent.
But there are signs the momentum from the fourth quarter is continuing. Retail sales in January rose 3 percent. Reflecting healthier consumer buying, auto and truck production is 20 percent higher so far this year compared with last year.
This positive news about the economy is unlikely to change President Clinton's plan to stimulate the economy through a spending package aimed at infrastruture rebuilding. This is because although growth has begun, unemployment figures remain stubbornly high, hovering around 7 percent.
This may improve in coming months given anecdotal signs that the gains may be stimulating business into the second quarter of 1993. In a survey of 15,000 businesses, the temporary service Manpower Inc. found 26 percent of the respondents said they would increase staffing levels during the next three months, up from 17 percent who planned further hiring in the last quarter. After seasonal activity is removed "it appears we are headed for a real increase," says company president Mitchell Fromstein.
According to the Manpower survey, the brightest spots in the springtime economy will be in construction, where 36 percent of firms will add workers. Twenty-eight percent of durable-goods manufacturers plan on adding workers as do 26 percent of nondurable producers. Durable goods are those items such as major appliances that are expected to last three years or more.
Many economists, however, remain convinced that the economy will slow down soon. "We expect the first half to be somewhat slower," says Richard Stuckey, chief economist at DuPont. Acting as a drag on the economy will be the ongoing shrinkage of the work force in large corporations, the cuts in defense and aerospace spending, and weak commercial real estate markets.
The administration hopes for a stronger economy in 1993 because the Clinton tax hikes and spending cuts will begin to drain money from the economy in 1994. They know they need to boost the economy now because they are going to take it away in 1994, says Dederick.