Expansion seems likely as confidence and sales pick up

BUILDING A FIRM RECOVERY

December 13, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- Economic news these days is full o seasonal cheer.

Cash registers are ringing more loudly than they have for a long time, housing sales are at their highest in four years, auto production is the briskest in two years and unemployment is down. Banks appear readier to make business loans, and consumer confidence is improving.

So, are the good times near after the long, slow haul through recession?

The answer is a qualified yes, according to economists. There will likely be no boom. But, with luck and a little help from the Clinton administration, they say, the economy seems poised for steady expansion.

"There is an awful lot of pent-up demand out there," said Laura Baughman, president of Trade Partnership, a Washington economic consultant. "People have not been spending for a long time."

Holiday retail sales, she said, should increase by as much as 5 percent over last year. And, pointing to the change in the White House, as well as recent positive economic reports, she added: "All that builds up the psychology that things are going to be OK."

Consumer confidence is crucial to economic expansion. Consumer spending amounts to two-thirds of the nation's economic activity.

For most of the past three years, Americans have not been spending freely, cramping the style of the world's richest consumer society. Worries about layoffs and lost income have kept confidence low.

But in November, the Conference Board's Consumer Confidence Index, one of the government's leading indicators of economic activity, shot up an impressive 11 points. The index, set at 100 in the heady days of 1985, stood at 65.5 last month -- hardly a euphoric reading, but a marked improvement over recent months.

"We are on the uptick and, from all the economic news we get, it looks as though, indeed, we might be coming out of this recession," said Fabian Linden, executive director of the Conference Board's consumer research center.

There are some major obstacles to a recovery. Demand for exports should be weak as Japan and Europe work out of deep, long downturns. And major American companies, which have shed thousands of workers in restructurings, are likely to remain lean for some time.

That could prolong the recession that started in July 1990, according to the National Bureau of Economic Research, the official judge of when such downturns begin and end.

A flurry of good news

Still, the recent spate of good news has included:

* An impressive 3.9 percent growth rate in gross domestic product in the third quarter. Economic growth, according to First Chicago Bank, is expected to retreat to about 2 percent in the fourth quarter, before rising again to 2.5 percent, a performance strong enough to set the foundation for solid expansion.

"We are flirting with that 3 percent historical [economic growth] number," said John Tuccillo, senior economist with the National Association of Realtors.

* A drop in the unemployment rate, from 7.4 percent in October to 7.2 percent in November, continuing the downward trend since June. Total employment was up 420,000 in November, the first substantial gain since April. And the number of Americans filing new claims for unemployment benefits dropped in late November to the lowest level in more than three years.

Meanwhile, a survey of 15,000 companies by Manpower Inc. indicates that net hiring in the first quarter of 1992 is likely to increase 12 percent. That would be the best quarterly advance since the 14 percent jump in the third quarter of 1990, when the business cycle reached its pre-recession peak.

The unemployment rate could drop as low as 6.5 percent next year, depending on the size of the stimulus package promised by President-elect Bill Clinton. Still, restructuring by defense contractors in California, automakers in the Midwest and computer companies in the Northeast will limit any decline in the unemployment rate.

* A net increase in new and existing housing units of 4.2 million in October, the strongest performance in four years. Although average fixed rates on 30-year mortgages have increased from 7.8 percent to about 8.3 percent since September, they are still low by historic standards.

"It is still a very good rate," said David Berson, an economist with the Federal National Mortgage Association. "Housing continues to get better slowly. Since the spring of 1991, economic growth has gradually been increasing, and I would expect it to increase still more next year with the structural impediments of too much debt, too many office buildings, too many multifamily units being slowly erased, and with the addition [by the Clinton administration] of modest stimulus."

* A 2.7-million-vehicle production target set by automakers for the first quarter of next year, according to Ward's Automotive Reports. That's the highest level since the second quarter of 1990.

* The end of banks' loan crisis and regulatory crackdown.

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