Analysts see slow growth for quarter

July 09, 1995|By Knight-Ridder News Service

WASHINGTON -- The U.S. economy should post a modest rebound in the third quarter as moderate consumer spending resumes, the oversupply of inventories recedes and export sales improve, economists said in a survey.

"We're still not talking about a very good growth rate. But it is a judgment that we are not slipping into recession," said David Seiders, chief economist at the National Association of Home Builders.

The median forecast of the 35 analysts surveyed by Knight-Ridder Financial News called for a 1.8 percent rate in the third quarter after 0.7 percent in the second, at a seasonally adjusted annual rate. The Commerce Department reported that the economy grew at a 2.7 percent rate in the first quarter.

Analysts also said the mild improvement in the economy should result from the recent drop in interest rates, fewer surplus inventories and the stabilization of the financial crisis in Mexico.

Estimates for the economy in the third quarter ranged from down 1.0 percent to up 3.0 percent. Those on the low end said they believed the inventory adjustment would take a while longer and those with forecasts on the high end felt it was already about over.

For example, Chris Low of theHongkong Bank Group sees third-quarter gross domestic product falling by 1.0 percent as the production cuts to lower inventories spread from the auto sector to the rest of the economy.

James Smith of the University of North Carolina was at the other end of the spectrum, predicting third-quarter growth of 2.6 percent with "a strong rebound in industrial production as we discover that inventories are too low."

Most economists said they didn't expect the recovery in manufacturing to be that robust, however. The median forecast of analysts surveyed called for a 1.8 percent gain in industrial output at a seasonally adjusted annual rate after falling in both April and May.

Predictions for second-quarter GDP ranged from down 1.0 percent to up 2.0 percent. The Commerce Department will release its initial GDP report July 28.

Growth for 1995 as a whole isexpected to be the weakest since the 1991 recession. The median forecast is for the economy to expand 1.9 percent this year, compared with 4.1 percent in 1994. Estimates ranged from up 0.3 percent to up 3.1 percent.

The Federal Reserve began raising interest rates in February 1994 in an attempt to reign in U.S. growth to its long-term potential rate of 2.5 percent to keep inflation from getting out of hand.

But weaker-than-expected second-quarter economic data prompted the Fed to trim rates by a quarter percent last week.

On the inflation front, economists see consumer prices edging up a tad in the third quarter, rising at a 3.3 percent seasonally adjusted annual rate after increasing 3.2 percent in the second, according to the median estimate.

Forecasts ranged from up 2.4 percent to up 4.4 percent.

Last year's overheated growth is expected to push consumer inflation for 1995 up 3.3 percent, according to the median prediction. That would be considerably higher than annual gains of 2.7 percent seen in each of the previous 2 years. Estimates ranged from up 2.5 percent to up 4.0 percent.

Treasury yields are seen averaging 5.52 percent on 3-month bills and 6.59 percent on 30-year bonds in the third quarter.

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