Decline in Consumer Spending Forecast

A committee of bank economists predicted Sunday that the growth of consumer spending will slow in 1987, in part because of heavy personal spending last year in anticipation of new tax laws.

The economic advisory committee of the American Bankers Association forecast that personal spending will increase 2.6% during 1987, compared to a 4% rise in 1986.

Personal spending is expected to rise at a miserly 1.3% annual rate during the first quarter of this year, the committee said, before rebounding later in the year.

Consumers spent heavily last year, especially for expensive items like autos, to take advantage of sales tax deductions that disappeared when the new tax code took effect Jan. 1.

Economists have said many of those sales were “borrowed” from 1987. The bankers’ committee concurred, predicting that the auto industry will sell a million fewer cars this year than during 1986.

At the same time, however, the bankers predicted that the economy as a whole would continue to grow. They forecast that the gross national product, the nation’s total output of goods and services, will grow by 2.9% compared to 2.2% in 1986.

The bank economists also predicted:

Inflation will return, triggered by higher energy costs, but it will remain moderate by standards of recent years.

The dollar may decline further, but is likely to stabilize during the year. That will make imports more expensive and U.S. goods cheaper and more attractive abroad, contributing to a $20 billion decline in the nation’s trade deficit.

Interest rates should remain flat for the year.