U.S. Economic and Industrial Outlooks Kent Model Forecasts

Article excerpt

In 1993, the economy is expected to continue expanding at moderate pace, which will accelerate in 1994 and afterward. Measured by GDP in constant 1987 dollars, the rate of growth is expected to be 2.1% this year. In 1993, it will accelerate to 2.8%, and in 1994, 3.3%. The employment outlook is also optimistic. Data are not as rosy as that for the real output, however. Forecast calls for the unemployment rate to continue declining in small margins throughout the next and the following years. Compared to the rate of slightly above 7% at the end of this year, it will decline to 5.5% in the second half of 1994. Forecast data calls for inflation to behave within tolerable levels of 3-4% in the next and the following years. Some acceleration in the pace of price increases is expected to start in the second half of 1994. Short-term interest rates are predicted to keep increasing throughout both forecast years. Long-term rates will also follow the upward trend, Increases in long-term rates and yields are expected to proceed in smaller margins than those of short-term rates.

REAL GROWTH

Data for the rest of this year and the forecasts of 1993-1994 point to four major factors expected to shape the growth of the economy: consumer spending, residential construction, business capital outlays, and exports,

In 1993 and 1994, consumers are expected to be the major force speeding up the pace of recovery. Consumer spending is expected to grow by 5.8% this year. In 1993, consumer spending will increase by 6.5%, and in 1994, by 7.4%. Factor responsible for such healthy gains are expected to be: increases in personal disposable income due to rising number of employed persons, gains in average wage rates, rising returns on Securities and increases in farm income. Forecast data for this year calls for substantial increases in spending on durables, mainly motor vehicles and parts, home building materials and household durables. Compared to the expected 7% increase in outlays on durables this year over the last year, consumers are expected to increase their outlays by 9% in the coming year and additional 9% in 1994. Consumers will also spend significantly more on services, notably the health care, travel, fast food, and transportation. Forecast data of retail sales calls for record Christmas sales this and next year. In 1993, the fastest growing items are expected to be motor vehicles and parts, hardware, household appliances and furnishings, home electronics, and other consumer durables. Data also indicate strength in sales of textile mill products, products in specialty stores, and petroleum and coal products especially gasoline and other oil-related products, and chemicals for household and personal use. The other two major factors contributing to the expansion of the economy during 1993-1994 are expected to be private housing, and business investment in machinery and equipment. While private residential construction will be a dominant factor in 1993, it will slow down somewhat in 1994. Business capital outlays are expected to rise though gradually next year. But they will gain momentum in 1994. The U.S. exports, the other factor contributing to the growth of the economy, are expected to remain weak next year due to current recession or modest growth of overseas economies. Exports are expected to regain strength in 1994 when the majority of countries will be out of main troubles and their economies start expanding.

EMPLOYMENT

Forecast data point to continuing improvements in the employment situation in coming months and throughout the next and the following years. Data indicate significant improvements in private housing construction, paper and products, instruments, and chemicals and products. Some segments are expected to experience continuing problems, notably nonresidential construction, apartment housing, airline transportation, and defense and defense-related segments of the economy especially segments of mining, construction, machinery, and instruments. …