Experts, Consumers More Positive About Economy
The slumping U.S. economy, the subject of bleak forecasts for months, received somewhat kinder reviews Tuesday in a report by a leading group of business economists and a separate survey of consumer attitudes.
In a relatively upbeat appraisal, the National Assn. of Business Economists said the recession will be over by midyear and last no longer than nine months in all, somewhat shorter than the 11-month average for downturns since World War II.
“Compared to historic norms, that is a fairly short recession,” said Richard D. Rippe, the organization’s president. “In terms of severity, the recession is expected to be fairly shallow” compared to past slumps, he added.
In a potpourri of other news, there were at least some signs of vitality in the economy and encouraging evidence for the future.
A Conference Board survey of consumer confidence detected a modest gain in February, the first advance in five months. And the American Automobile Assn. reported that gasoline prices have sunk to levels not seen since the Persian Gulf crisis began in August.
The U.S. trade deficit, meanwhile, fell to a seven-year low in 1990 on a “balance of payments” basis that excludes military trade, the Commerce Department said. And the department also reported a 0.7% drop in demand for for long-lasting durable goods in January, a decline analysts viewed as modest.
In addition, news of an imminent U.S. victory in the Persian Gulf War--while unrelated to Tuesday’s economic findings--was viewed as another favorable indicator for the economy in the coming months.
Treasury Secretary Nicholas F. Brady told reporters in Washington that the economy will get a “definite” boost shortly as the end of war removed uncertainty that has delayed many business decisions.
The Conference Board survey, conducted between Feb. 1 and Feb. 18, provided a reminder of the anxieties that have restrained the economy, yet also hinted that views may be starting to improve. Americans expressed more optimism about job prospects six months in the future than they did when asked the same question a month ago.
At the same time, their assessment of current conditions dipped slightly. The confidence measure, while up slightly in total, remained at unusually low levels and reflected worries about the war, which had not yet entered its current phase at the time of the survey.
“The uncertainties of war are rapidly diminishing,” said Donald Ratajczak, an economist at Georgia State University who expects the economy to start to spring back within the next few months. “As a result, consumer sentiment will come up. We expect the next reading to be better than the last one.”
According to the survey of 54 business economists, the Federal Reserve Board’s recent efforts to ease interest rates, along with the twin prospects of low oil prices and the war’s conclusion, are combining to propel the U.S. economy out of the recession by midyear.
Moreover, they said, overall economic activity will decline just 1.0% during the recession, less than half the average drop of recent downturns.
None of the economy’s strengths are potent enough to overcome the recession alone, Rippe said in an interview, but certain factors taken together could improve the outlook soon.
The psychological benefits of peace in the Middle East, combined with added cash for consumers from sustained low oil prices, are “a distinct plus,” said Rippe, who is chief economist at the Dean Witter Reynolds investment firm in New York.
The process may be under way. The retail price of gasoline fell 2.9 cents a gallon for the week ended Tuesday and is cheaper than before Iraq’s invasion of Kuwait, not counting new federal and state gasoline taxes, the American Automobile Assn. said. The retail price for a gallon of self-serve regular unleaded was $1.106. On Aug. 1, the day before the invasion, the same gasoline cost $1.075 per gallon.
Separately, economists were not concerned by the Commerce Department’s report of a modest decline in orders for durable goods--such long-lasting items as refrigerators and furniture--which they attributed to normal, seasonal factors.
The report of a declining trade deficit for last year was seen as evidence of strength in U.S. manufactured exports, boosted by the lower dollar that gives American producers a price advantage on world markets.
The gap between how much Americans purchase from other nations and how much they sell fell to $108.7 billion last year from $114.9 billion in 1989 and was the lowest since $67.1 billion in 1983, according to the Commerce Department.
Both exports and imports rose to record levels in the last three months of 1990. Exports reached $100.5 billion in the fourth quarter, a $4.3-billion gain from the third-quarter, aided by strong sales of computers, telecommunications equipment and other manufactured products.
“When people say American producers are not competing, don’t tell the Europeans,” said Georgia State’s Ratajczak. “They’re buying.”
Consumer Confidence Feb., ‘91: 57.7 Jan., ‘91: 55.1 Feb., ‘90: 106.7 Source: Conference Board Durable Goods New orders, billions of dollars seasonally adjusted Jan., ‘91: 118.5 Dec., ‘90: 119.4 Jan., ‘90: 117.9 Source: Commerce Department Trade Deficit U.S. merchandise trade balance (exports less imports) calculated on a balance of payments basis, excluding military sales, in billions of dollars. 1990: $28.86 billion deficit Source: Commerce Department Recession Survey The National Assn. of Business Economists on Tuesday predicted that the recession would be shorter and less severe than the average U.S. downturn since World War II. It cited the recent lowering of interest rates and the prospect of an end to the Persian Gulf War as among the reasons. Following is a list of variables that could modify or aggravate the current recession. Factors that could moderate the recession: Monetary policy: 72% Lower oil/ Gulf win: 50% Tight inventory: 37% Increased exports: 26% New budget package: 4% Lower inflation: 2% Other: 7% Panelists chose two of the options. Factors that could worsen the recession: Consumer caution/ war: 46% Banking system/ loans: 35% Tight monetary policy: 33% Default on debts: 20% Weakness overseas: 19% Higher oil prices: 15% Real estate decline: 13% State and local budgets: 7% Tight fiscal policy: 2% Other: 9% Panelists chose two of the options. Source: NABE Economic Outlook Survey, Feburary 1991
