In second half, economy should look familiar

July 25, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- Stand by for more of the same in the second half of the year as in the first half -- moderate economic growth, few jobs and continuing political uncertainty.

The long-awaited economic blastoff is still not in prospect this year, with consumers gloomy about jobs, business antsy about taxes and major foreign markets depressed.

"Nothing jumps out at me," said George J. Collins, president and chief executive officer of T. Rowe Price, the Baltimore financial management company. "I don't see any basis for thinking it's going to bounce back more."

Local activity is likely to be led by construction, the wholesale industry, and financial and insurance services, according to the University of Baltimore's Regional Economic Studies Program.

But there is scant prospect of jobs growth. Employment gains in the second half is expected to be zero, and for the year, 1 percent. And this is the good news.

"Maryland lost 7 percent of its jobs in the last two years. So no growth at all is really like stopping beating your head against the wall," said Michael Conte, director of the Regional Economic Studies Program.

Raymond "Chip" Mason, chairman of Legg Mason Inc., the Baltimore stock brokerage and investment banker, said: "We [in Maryland] took some pretty hard hits. I think we have seen the worst."

Mr. Mason estimated that it would take two or three more years "to pull our way back," absent a major economic stimulus or depressant from the federal government.

Nationally, the floods in the Midwest have caused economists to slightly lower their predictions -- now expected to hover between an annual rate of 2.5 percent and 3 percent during the second half.

That should create enough jobs to soak up increases in the work force, but not enough to create dramatic reduction in unemployment, which is expected to end the year at about 6.7 percent and probably higher.

Donald Ratajczak, director of Georgia State University's Economic Forecasting Center, said: "It's an odd economic condition. What you have got is consumers who are spending primarily because their cars are falling apart and also because they need new carpets because the old ones were flooded out.

"On the other hand, you have a corporate sector that is getting more antsy [over the prospect of higher taxes] by the minute. . . . There is no joy in the boardroom."

Feeding individual and corporate restraint is uncertainty over the final shape of the Clinton administration's deficit reduction package. The details are being negotiated in the Senate-House conference committee. The result is expected before Congress goes into recess next month.

The administration is delaying its midyear economic review until the final package emerges, but it has already lowered its fiscal 1993 deficit projection from $310 billion to $285 billion. The revision is partly due to low interest rates lessening the burden of funding the federal debt.

The economic uncertainty, which has been a constant factor during the first seven months of the Clinton administration, is being compounded by questions over the future of House Ways and Committee Chairman Dan Rostenkowski, who has been under investigation in the House post office scandal.

"When you lose the perception of power of a person who gets the deal done, that's more uncertainty for the markets. It's going to be a very crucial time for the administration, just when it looked as though they were beginning to get into their stride," said Diane Swonk of First Chicago Corp.

Mr. Rostenkowski is a key player in the administration's struggle to get the budget package through Congress. Should he be forced out, his departure would be a severe blow to the president's proposals.

Looking at the major sectors the second half shapes up like this:

* Autos will be one of the strongest sectors. Production schedules call for vehicles to roll off the line at an annualized rate of 11.5 million in the third quarter, the strongest output in five years. Production will slow in the fourth quarter.

Fueling this: Consumers' cars are falling apart as the average age of passenger vehicles on the road increased from 6.9 years in 1981 to 7.9 years in 1991.

* Construction is expected to be modest. The lowest interest rates in two decades have failed to bring buyers out into a glutted market. Any improvement will be gradual, with housing starts -- currently at an annual rate of 1.2 million -- expected to lessen this quarter in the wake of the Midwest floods before picking up in the fourth quarter and advancing to 1.3 million by mid-1994.

Federal Reserve Chairman Alan Greenspan gave notice last weekthat interest rates would not stay low forever. Most economists expect the Fed to raise the federal funds rate, currently 3 percent, by a quarter or half of 1 percent by year's end to forestall the onset of inflation as the economy slowly gathers strength.

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