Academic journal article ABA Banking Journal

Spotty Regional Trends Add Up to 'Lite' Recovery

Academic journal article ABA Banking Journal

Spotty Regional Trends Add Up to 'Lite' Recovery

Article excerpt

The economy is poised for moderate economic growth--with a slight increase in inflation--through the end of next year.

ABA's Economic Advisory Committee forecasts a 2.4% increase in real gross domestic product in 1993 over 1992 and an increase of 2.9% in 1994 over 1993.

The committee also projected that the consumer price index would rise to 3.3% in 1993 and to 3.5% in 1994, versus 3.1 % in 1992.

With both growth and inflation inching up, the committee expects short-term interest rates to begin rising by the end of 1993.

Longer-term yields will also rise a bit, according to the committee's predictions, but not as quickly as short-term rates. Three factors stand in the way of a more robust recovery, according to the committee:

(1) Higher taxes brought on by the budget bill.

(2) Uncertainties regarding the amounts businesses will have to contribute towards federal health care reform.

(3) The risk that America's trading partners' poor economic performance will dampen our exports.

Somewhat offsetting this are three more factors that offer some encouragement:

(1) Capital spending is rising.

(2) Bank liquidity is ample. (3) There are pent-up consumer demands--especially for cars--that are still to be satisfied.

The national picture is the sum of the outlook in each region, and regionally, the near-term economic forecasts vary widely. New England. The general outlook for this region is more promising than at any time since the late 1980s.

Likely prospects for only slowly rising rates benefit the Northeast to a greater extent than any other region, with the exception of California, because of high debt loads held by households there. The region's credit crunch is casing, but military cutbacks continue to plague it, especially in Connecticut and Massachusetts. Connecticut remains in recession, continuing to lose jobs this year.

Indeed, economic prospects are beginning to diverge, state by state. Maine and New Hampshire are poised for growth equal or superior to the national average through the 1995 forecast horizon, while Rhode Island and Massachusetts will see growth, though at less than the national average.

Rocky Mountains and Southwest.

This region will outperform most of the nation this year, thanks to tourism, non-defense high-tech industries, and homebuilding. …

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