Survey Predicts Inflation Jump, Strong Growth : Business Economist Poll Reflects More Optimism
The U.S. economy will have significantly higher inflation this year, but economic growth will strengthen at the same time, pushing the next recession further into the future, the nation’s top business economists predicted Monday.
The National Assn. of Business Economists said its latest survey found more optimism about growth prospects this year even though concerns about inflation had risen as well since the last survey was taken three months ago.
The 228 economists surveyed forecast stronger economic growth than in 1986, a lower trade deficit and a declining federal budget deficit. But these positive developments will be offset somewhat by rises in interest rates and a pickup in inflation, they said.
“It is a foregone conclusion that inflation has been rekindled,” Jerry Jordan, president of the association, said at a news briefing. “Last year was the lowest inflation rate in the last 25 years and it will be the lowest inflation rate probably to the end of this century.”
The economists predicted that consumer prices, which climbed just 1.1% in 1986, will rise by 4.3% this year.
But even with the higher inflation, the economists predicted stronger overall growth than in 1986. They based this forecast on a belief that the trade deficit, which hit a record $166 billion last year, will start down as the weaker dollar lifts the fortunes of American manufacturers.
The analysts forecast that the economy, as measured by the gross national product, will expand this year and next at annual rates of 2.9%, up from the 2.5% GNP growth turned in during 1986.
More than half of the economists, 57%, believe the current expansion will last through 1988, compared to only 48% who were that optimistic in the previous survey.
Jordan said that most economists were now picking spring, 1989, as the likely time for the beginning of the next recession.
The Reagan Administration began in 1985 a policy engineered by Treasury Secretary James A. Baker III to push the value of the dollar lower in order to limit imports and make American goods more competitive on overseas markets.
The new survey found evidence that this strategy was beginning to pay off. One-fourth of the economists reported higher export sales by their firms in the past quarter, up from only 8% reporting increased demand six months ago.
The economists forecast that the unemployment rate, which fell last month to a seven-year low of 6.3%, will rise by year-end to 6.6%.