A Sturdy US Economy
FROM the look of things last week, the United States economy was headed for big trouble and the Federal Reserve was to blame. This week, a number of key reports have helped to counter that pessimism, indicating that despite the volatility of the stock market, the economy is on track. Best of all, consumers are feeling positive.
A few reasons for cautious optimism:
* On Tuesday, the National Association of Business Economists released a survey of economic forecasters, who say that this year's interest-rate hikes have begun to slow the economy and restrain inflation - without threatening recession. Unemployment will continue to fall, they predict, and gross domestic product (the output of goods and services) should grow at a stable rate from 1995 through 1999. The Commerce Department reported yesterday that the economy grew at a solid 3.9 percent annual rate in the third quarter, mostly as a result of increased business investment and construction.
* US companies expect to add to their work forces in the first quarter of 1995 at the fastest rate in five years, according to a recent survey of about 15,000 businesses. The outlook is best for the manufacturing sector and is strongest in the South and Midwest.
* Sales of existing homes rose 0.5 percent in October from September - a notable increase considering the rise in both fixed-rate and adjustable-rate mortgages. Economists point to the report by the National Association of Realtors as proof of the economy's ability to persevere in the face of interest-rate hikes.
* Finally, consumer confidence in the US rose in November, reaching a four-year high. The Conference Board, a New York business research group, says the numbers prove that fear of an imminent slowdown in the economy is unwarranted. According to the group's study, more US consumers feel that jobs are plentiful and are confident about family incomes and business conditions.
Good news, yes, but as always with the economy, we are circumspect. US factory orders for durable goods declined last month as demand for automobile and other transportation equipment fell. And after plunging 137 points last week, the stock market began only a tentative rise, gaining 65 points Friday and Monday. Investors had been seeking the safety of bonds, but even bond prices fell Tuesday with news of strong economic growth and the prospect of inflation.
Right now, the economy looks solid, and for that we cheer. But like weather forecasters, neither economists nor the stock market are infallible predictors of the future.