Business Leaders Predict Economy Will Slow in ’89

Times Staff Writer

America’s top corporate executives predicted Friday that the nation’s economy will begin to slow significantly in 1989, but they said there still is no sign that it will plunge into a recession.

In their annual fall forecast, members of the Business Council, which comprises the chairmen or presidents of 100 large U.S. corporations, said they expect the economy to grow by about 2.5% in 1989, down from the 4% rate that is expected this year--primarily because consumer spending would begin to ebb and business investment would fall off.

They also predicted that the nation’s huge trade deficit will continue to shrink, dropping from the $134 billion expected this year to about $115 billion in 1989 and to less than $100 billion in 1990.

In a briefing for reporters, the executives said they thought some slowdown in the economic growth rate would be beneficial to prevent the economy from overheating and intensifying inflation pressures.


6% Jobless Rate Predicted

For now, they forecast that inflation, as measured by the consumer price index, would rise to 5.1% in 1989 from 4.2% this year. And they said interest rates would continue to edge up for the rest of this year, falling in 1989 as the economy slows.

They also predicted that the unemployment rate would rise from its current 5.4% to about 6% in 1990--still relatively low by recent standards.

The council’s predictions essentially are in line with those of most other government and private forecasters.


John S. Reed, chairman of Citicorp, who headed the council’s forecasting team, said the executives believe that “all signs really are good” for the next several months and added that even the 2.5% growth rate predicted for 1989 would be sufficient to continue the current economic expansion.

Executives of other top corporations generally agreed with Reed’s assessment. But Edmund T. Pratt Jr., chairman of Pfizer Inc., the giant pharmaceuticals maker, said business still is “very concerned about the twin (federal budget and trade) deficits, and about the price we may have to pay for it later” if Congress and the new Administration do not act to cut spending.

Some of the leaders also expressed concern that a further rise in the value of the dollar, beyond the modest appreciation that has occurred since last January, might jeopardize continued improvement in the nation’s trade deficit. But there was no clear consensus on the issue.

The executives also said they believe the world economy is in better shape than they had expected, with growth rates both in Europe and Asia exceeding earlier predictions. More rapid growth rates abroad help pare the U.S. trade deficit because foreigners presumably are more willing to buy American exports.

Friday’s forecast shows consumer spending likely to rise only by about 2% in 1989 and 1.5% in 1990, down from 2.6% this year and last. Meanwhile, the council said it expects the rise in business investment to slow to 3.1% next year and to 0.8% in 1990, from this year’s buoyant 6.4% pace.