U.S. growth is expected to pick up Predicted 3% rise better than Europe's

October 02, 1995|By BLOOMBERG BUSINESS NEWS

WASHINGTON -- The U.S. economy will grow at a faster pace in the last three months of 1995 than in the first nine months of the year even as price pressures remain subdued.

That's the view of many analysts, who say the U.S. economy, the world's largest, will be among the fastest-growing in the developed world. The pickup in growth here, accompanied by only moderate price pressures, will contrast with slowing growth in Europe and continued stagnation in Japan.

The U.S. gross domestic product, which grew at a sluggish 1.1 percent annual rate in the second quarter, probably grew at a 2 percent-plus rate in the third quarter and is poised to expand at nearly a 3 percent rate in final quarter of the year.

"Things are in great shape," said Gene Sherman, an economist at the investment firm M. A. Schapiro & Co., in New York. "You have to go back to the early 1960s, before we got stuck in Vietnam, to find an economy as balanced as this one. There is growth. Inflation is low."

The slowdown, which many economists view as a salutary "soft landing," leached price pressures from the economy and gave the nation's three-year expansion a new lease on life.

The healthy rise in stock and bond prices -- the benchmark Dow Jones average is up about 25 percent this year while bond yields have fallen from 7.88 percent at the end of last year to 6.55 percent -- has bolstered confidence and should spur spending.

"The near-term prospects for the U.S. economy have improved in recent months," Federal Reserve Chairman Alan Greenspan said recently in remarks to the Senate Banking Committee. "The strong increases in financial market values this year are likely to provide substantial support to household and business spending."

While growth prospects had improved since he last addressed the Senate in mid-July, Mr. Greenspan said, the rate of growth didn't appear poised to return to last year's pace, which posed inflation risks.

"Fortunately, economic growth has slowed appreciably this year, inflation risks have receded and, as a consequence, the threat of severe recession has declined," he said.

Because the U.S. economy is continuing to create jobs, consumers remain confident their incomes will be sufficient to pay off existing debt -- and then some.

With monthly payroll growth projected to average about 150,000 to 250,000 through the end of the year, consumers aren't likely to put away their pocketbooks.

Personal income growth reflects job growth. In August, for example, incomes rose 0.7 percent, the largest gain in six months.

"By and large, people feel more secure," said Raymond Worseck, chief economist with A. G. Edwards & Sons in St. Louis. The Christmas retail season "could be halfway decent," he said.

Equally encouraging, factory output appears poised to rebound, building on a 1.1 percent gain reported in August.

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