U.S. Economic and Industrial Outlook: Kent Model Forecasts

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Compared to the estimated overall growth of the economy of 3.9% in 1994, forecast data for the first half of 1995 point to a slowdown in growth to 3.3%. In the second half of 1995, the economy is expected to slow down further to 3.1%. Data for 1996 call for a 3.2% annual growth. Inflation will remain subdued, albeit the producer prices will increase a bit faster than consumer prices. In 1996, the upward pressures on prices are expected to gain strength. Upward movements in prices will accelerate but still remain within tolerable levels of approximately 3% annual rate for consumer prices, and 3.5-4.0% for producer prices. The employment outlook is optimistic. The number of employed persons will continue increasing in both forecast years. However, the unemployment rate will be almost flat or decline only marginally. The outlook for interest rates call for continuous increases both in short and long term rates in the first half of 1996. In the second half of the year, some declines in rates are predicted.


In 1995, the fastest growing component of GDP is expected to be business capital outlays. Firms will continue investing in machinery, equipment, and technology at healthy rates. In 1995, total business capital outlays are predicted to increase by 4.5%, measured in constant 1987 dollars. But it will slow down to 3.4% in 1966. In the next two years, businesses will spend more on nonresidential construction, notably on new office buildings, than in previous years. In both forecast years, consumer spending is expected to be the second fastest growing component of GDP. Personal consumption expenditures will be increasing at approximately the same rates as GDP. Measured in constant 1987 dollars, the 3.4% growth in 1995 and additional 3.2% in the year that follows are predicted. Data point to changing consumers' attitudes in the next two years. Consumer spending on cars will be slowing down from its 1994's peak. However, consumer outlays on other durables, notably spending on home maintenance and improvement materials, home electronics, appliances and home furnishings, are expected to remain strong in both forecast years. Services will remain the fastest growing component of consumer outlays. Strong increases are predicted for spending on health and health related services, travel, entertainment, maitenance and repair, rents, real estate, insurance, and banking services. Data of consumer nondurables indicate continuous increases in spending on food, beverages, footwear, and apparel. Spending on pharmaceuticals and various chemical products, and petroleum and coal products will be the fastest growing items in the nondurables category in both forecast years. Spending of state and local governments on goods and services are also expected to be positive in both forecast years. Factors causing a slowdown in growth of the economy are expected to be the Federal government defense spending, spending on residential construction, and negative balance of the U.S. trade. In the next year, Federal government defense spending is expected to continue declining, though on lower rate than in 1995/Spending on total residential construction is expected to decrease in both forecast years. Data indicate that the housing cycle for single-family housing starts is in its downward phase. The upward trend in the cycle is predicted in 1997 and years that follow. Forecast for multifamily housing is optimistic. In both forecast years, increases in the number of starts are predicted. Forecast data for the U.S. trade show continuing gains in the volume of goods and services exported, notably general machinery, chemicals, office machines, technology, agricultural products, and instruments. However, in 1995, the upward trend in the U.S. exports will not be strong enough to offset increases in imports, and the export-import gap will continue widening. Reduction in the negative merchandise balance is predicted to start in 1996.


The 1995-1996 employment data call for continuing increases in the number of employed persons. …