Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, May 11, 1990 TAG: 9005110780
SECTION: NATIONAL/INTERNATIONAL PAGE: A/1 EDITION: EVENING
SOURCE: GREG EDWARDS BUSINESS WRITER
DATELINE: HOT SPRINGS LENGTH: Medium
The economists advise the Business Council, an independent group that consists of 100 chief executives from some of America's most powerful businesses and industries.
Unanimous in their rejection of a recession, the Council's advisers expect the economy to grow at a moderate rate of roughly 2 percent this year and 2.6 percent in 1991. Inflation will increase, but only slightly ahead of earlier predictions to 4.8 percent for all of 1990, they said.
"The pace of growth our economists see ahead is not especially robust, but moderation is looked on as a virtue," said Lewis T. Preston, chairman of J.P. Morgan and Co., who briefed the press on the report.
"The dominant belief is that the [Federal Reserve Board] has successfully guided the economy into a moderate growth pattern that has an excellent chance of being extended for a very long time," Preston said.
Preston admitted he is not as robustly confident about the economy as the Council's economic advisers. He agreed the economy is fragile, which is reflected in recent deficit reduction talks between the Congress and the president.
Asked if a tightening of the economy by government, including raising taxes, might increase the threat of a recession, Preston said the economists seemed to have faith in the Fed to react to whatever occurs. The reaction of the Fed to deficit reduction will be to ease interest rates and that will probably be the reaction around the world, he said.
The findings of the Council's report on the economy include:
Economic growth is expected to accelerate from 1.9 percent for the first half of this year to 2.3 percent in the second half and 2.6 percent during 1991.
The key to the forecast for continued expansion is a presumption that consumer spending will contribute 1.5 percent to growth both in 1990 and 1991.
Because of higher than expected interest rates, the projected number of housing starts for 1990 has been lowered from 1.42 to 1.4 million, but the Council's forecasts of auto sales and capital spending have been raised.
Rapid improvements in the U.S. trade deficit have ended with the deficit projected to decline from $109 billion in 1989 to $102 billion this year and $100 billion in 1990.
The economists are not pleased that the core rate of inflation is stuck at 4.5 percent because they don't see any easy way to address the problem, Preston said.
That's because they see the source of inflation coming from higher costs in service industries, and they don't believe service-sector inflation can be dealt with by general policy actions, Preston said.
"If the Fed aggressively sought to squeeze inflation out of the services, our consultants would be concerned that manufacturing could be badly damaged," Preston said.
John Welch Jr., chairman of the General Electric Co., who attended the media briefing as a member of the Council's executive committee, had some good words for his company's industrial controls plant at Salem.
The order rate at the Salem plant is quite good, a recent management transition went well and the plant's team is executing well, Welsh said.
Overall, GE's electric power generation and medical equipment businesses are doing well while consumer appliance sales are weak, Welch said. The slowdown in aerospace business has not hit the company yet, he said.
Corporate chairmen meeting the press, besides Preston and Welch, were Roger Smith of General Motors, John Reed of Citicorp, Willard Butcher of the Chase Manhattan Bank, John Smale of Procter and Gamble, S.D. Bechtel Jr. of the Bechtel Group, and Edmund Pratt of Pfizer.
The merger mania of the 1980s may be over, but that doesn't mean that mergers or acquisitions that make sense and aren't glued together with large gobs of debt should not continue, the businessmen said.
American business is looking at the opening of Eastern Europe as an extension of opportunities they already have in Western Europe, the executives said. Many said they already had ventures underway in the former communist block, but Welch said it will be a while before a lot of money is made there.
The Business Council, which describes itself as an educational and deliberative group, meets three times a year and this session is focusing on environmental issues.
Today they will hear from speakers such as Lester Brown, president of the Worldwatch Institute; Paul Ehrlich, professor of population studies at Stanford; and John Sawhill, president of the Nature Conservancy. Saturday's speakers include Rep. John Dingell, D-Mich., chairman of the House Committee on Energy and Commerce, and Michael Boskin, chairman of the president's council of economic advisers.
by CNB