Lackluster Growth in U.S. Business Seen : Top Business Chiefs Predict Slow Growth

The nation’s top business leaders today predicted a continuation of generally lackluster growth over the next two years but expressed a “growing tinge of uncertainty” that some economic shock could trigger a recession in 1988.

The Business Council, composed of 65 executives from America’s largest corporations, issued an economic outlook that was decidedly more pessimistic than one six months ago.

They forecast that the beleaguered manufacturing sector will enjoy a modest rebound as the U.S. trade deficit begins to improve, but they said these gains will be offset by weakness in consumer spending and substantially higher inflation.

The business leaders noted exceptional volatility in financial markets this year, as the dollar has plummeted in value against foreign currencies.

The plunge in the dollar, which drives up the cost of imports, has stirred fears of resurgent inflation and has in turn pushed interest rates up sharply in the last month as lenders demanded higher premiums because of inflation worries.

The business executives contended that the dollar should stabilize in the months ahead, helping to ease inflation concerns and moderate the recent jump in interest rates. But they conceded that there was a danger that this optimistic scenario might not occur.

The business economists who prepared the outlook said they viewed the possibility of a recession starting in 1988 “as much less remote than it seemed three months ago.” They put the chances of a downturn starting next year at about 25%.

“There is a widespread feeling in the group that expansionary forces are rather fragile and vulnerable to shocks,” the Business Council said. “Such shocks might arise from disagreements over economic policy (among America and its major trading partners) or from a rise in U.S. interest rates designed to stem the fall in the dollar.”