S.F. Fed’s Chief Sees 3% Growth in ’87

The nation’s economic growth will pick up next year and employment should increase slightly, thanks to lower interest rates and the decline in the dollar’s value, Robert T. Parry, president of the Federal Reserve Bank of San Francisco, said Wednesday.

Parry predicted that the economy would grow by 3% in 1987 and that inflation next year could reach 3.5% if oil prices remain fairly stable. Parry made his remarks at the annual business outlook conference sponsored by the Los Angeles Chamber of Commerce.

Parry’s predictions are a bit more optimistic than what most economists expect for next year. Blue Chip Economic Indicators said that the 51 economists who participate in its monthly consensus forecast expect a 2.6% gain in the gross national product, the indicator of overall economic growth, and a 3.1% increase in inflation. Those estimates were compiled earlier this month by Blue Chip, a Sedona, Ariz., economic forecasting firm.

Economic growth in the first half of this year averaged just 2%, Parry said, and 2.5% for the third quarter. Parry said he felt good about the economy in 1987 for two reasons. First, he said, the recent decline in the dollar should stimulate exports and help reduce the nation’s trade deficit, which stood at $149 billion at the end of 1985. Second, Parry said, the decline in interest rates should stimulate business expansion and consumer spending.

But Parry allowed that his forecast could be upset by a number of uncertainties concerning trade, government spending and oil prices.

Parry said his forecast assumes that oil prices will remain stable. A drop in prices to $10 a barrel from the current $15 range could push inflation lower, he said, while an increase to $20 could push inflation higher.

Robert E. Wycoff, president and chief operating officer for Arco and another speaker at Wednesday’s conference, said he believed that oil prices would average $20 a barrel over the next three years. He also said that the current low prices would stimulate a 2% yearly increase in demand for oil.

Other speakers at the conference included Jack Valenti, president of the Motion Picture Assn. of America and Robert H. Smith, vice chairman and chief operating officer of Security Pacific National Bank.