Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 9, 1994 TAG: 9401040331
SECTION: BUSINESS PAGE: F2 EDITION: METRO
SOURCE: Dave Skidmore Associated Press
DATELINE: WASHINGTON LENGTH: Long
By the numbers, it will look a lot like 1993 and 1992: modest to moderate growth, low inflation, low interest rates and gradual improvement in the job market.
But the new year will feel a lot better, according to economists, because the modest growth will build on 2 1/2 years of recovery from the 1990-91 recession.
Perhaps the most telling sign of shifting attitudes is that Americans recently began telling pollsters that crime, rather than the economy, is their No. 1 concern.
"People now say they're more worried about losing their life or property than losing their jobs. . . . You can infer that people are feeling a little more secure financially," said economist Stuart Hoffman of PNC Bank Corp. in Pittsburgh.
The growing confidence reflects 1993's strong finish. But the scenario outlined in forecasts - a strong fourth quarter leading to a year of moderate growth - was what economists predicted for the year just ended.
Instead, growth lapsed to a near standstill and has only regained its footing in recent months. This time, analysts are more certain.
"Economists are staying conservative with their forecasts because they don't want to be fooled again," said Paul Getman of Regional Financial Associates in West Chester, Pa. "The big difference is that if we're wrong, things will be better than we expected, not worse."
Here's a look at what he and other analysts are saying about this year:
The overview: For the full year, GDP growth should register at 2.9 percent, about the same as 1993, according to the consensus of 50 economists surveyed in December by Blue Chip Economic Indicators of Sedona, Ariz.
Low interest rates are helping to stimulate purchases of autos and homes. And that's fueling sales of home-related goods such as furniture and appliances.
"We are going to have a fairly long-lasting good recovery, well into 1994 and possibly beyond," said Sung Won Sohn of Norwest Corp. in Minneapolis.
Early in the year, growth will be helped by rebuilding in flooded areas of the Midwest. But an income tax increase taking effect for upper-bracket consumers may take the edge off spending, particularly for luxury goods.
Businesses are expected to continue spending strongly on efficiency-enhancing computers and machinery. However, slowdowns in Japan and Europe will continue to dampen U.S. export sales, at least in the first half and very possibly all year.
The long-moribund commercial construction sector may not blossom, but it should be less of a drag on the economy.
Jobs: Efficiency-minded companies still will hire cautiously even in the face of brisk sales. For example, the Commerce Department projects an 11 percent increase in orders to electronic component manufacturers but a 2 percent cut in the industry's work force.
And some of the layoffs already announced by big companies were planned in stages and will continue to pinch job growth this year.
Still, the employment mix should improve. In 1993, much of it came at retail stores, restaurants and temporary help firms. There should be more high-paying construction and manufacturing jobs this year.
The unemployment rate in November was 6.4 percent, down from 7.1 percent as the year began. A change in the Labor Department survey methods this year should artificially push the rate back up by a half of a percentage point but it should sink back to the current level by the end of the year.
Prices: Crude oil prices have fallen from $19 a barrel in mid-October to $14 at year's end. Energy costs figure into virtually every good produced and service delivered, so the oil decline should curb consumer price inflation early in the year.
"In terms of inflation, we're back to the '60s," said economist Lawrence H. Meyer, a St. Louis-based consultant.
Prices should rise 2.9 percent in 1994, compared with 2.8 percent in 1993, according to the Blue Chip economists.
Interest rates: Interest rates should inch higher, but not by much.
"It won't make much difference to the average depositor or borrower," said economist Robert G. Dederick of Northern Trust Co. in Chicago.
The Federal Reserve, with an eye to preventing inflation, is expected to nudge short-term interest rates up by a half to a full percentage point through the year.
Long-term interest rates probably will fluctuate in a narrow range. The 30-year mortgage rate hit a 25-year low of just under 7 percent in October. It's floated a bit above 7 percent since and probably won't rise above 7 1/2 percent this year.
Housing: Many would-be homeowners will stop waiting for lower interest rates and jump into the market, pushing up sales. The increased activity should shore up home values, particularly in the Northeast where they've been sagging.
The National Association of Realtors predicts the median price for existing single-family homes will rise 3.3 percent to $110,000 in 1994 after a 2.7 percent increase in 1993.
Regions: California will continue to struggle from the effects of shrinking military spending. Brisk auto sales will help related manufacturing industries in the Midwest. The booming stock market and recovery in banking is reviving financial service companies in the Northeast. Slumping oil prices won't hurt Texas nearly as hard as a similar drop in 1986. The Southwest has developed a more diverse economy since then.
by CNB