Academic journal article The Journal of Business Forecasting Methods & Systems

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

Academic journal article The Journal of Business Forecasting Methods & Systems

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

Article excerpt

Forecast data show that the economy will continue to grow at a moderate pace this year and 1994. Measured by GDP in constant 1997 dollars, growth this year is expected to be 3.1%, accelerating to 3.3% next year. Data for employment is not positive, however. Employment is expected to keep increasing by small margins mainly due to continuing cuts in the defense and defense-related industries and the cost-cutting measures of firms. This year inflation is expected to remain low. Data indicate that acceleration of price increases will start late this year and continue in 1994 and afterward. Data also show that the trough in the interest rates cycle has been reached. No further significant declines are expected. The upward trend in interest rates and yields will unfold in the second half of this year and will continue in 1994.

REAL GROWTH

The following factors are expected to contribute to the growth of the economy: consumer spending, housing, business spending, and exports. Forecast of consumer spending in the retail segment is positive for this year, next year and beyond. Data call for moderate upward movements in sales of nondurables, notably food and kindred products, beverages, general merchandise, footwear, and petroleum and coal products. Forecasts are slightly above the average for textile mill products, apparel, and specialty stores. A bit faster growth of retail sales is predicted for consumer durables, especially sales of building materials, hardware, household durables, household electronics, and maintenance and repairs. Sales of motor vehicles and parts are expected to recuperate and regain strength in the second quarter of this year and afterward. Largest gains in consumer spending are expected to be in the non-retail segment, especially in health and health-related services, transportation and communications. In the health and health-related services, a significant portion of increases in revenues are expected to be attributable to price increases than to actual rise in the volume. In the private housing segment, fast growth of single-family housing starts will continue this year. It will abate a bit in 1994, however. Outlook for apartment housing is not as bright. Number of apartment units starts this year is expected to be higher by 7.3% than the last year, and by additional 13% in 1994. The 180 thousand units expected to be built in the next year is still below the more normal 200-250 thousand units. Data for mobile homes shipments point to a moderate upward trend in both forecast years. Business spending is expected to continue expanding vigorously. Business capital outlays, measured in constant 1987 dollars, are to be by 6.5% higher this year over the last year, and by 5.1% higher in 1994 over this year. The outlook for exports this and the next year is optimistic: significant increases in exports of agricultural products, chemicals, machinery and instruments are predicted for this and the next year. Data for merchandise balance is not as good, however. Imports are expected to grow faster than exports, driving the balance increasingly into red. In both forecast years and beyond, the main factor causing the slowdown in the growth of the economy will be of Federal government expenditures on goods and services due to cuts in spending on defense.

EMPLOYMENT

Forecasts for the employment this year and 1994 remain mixed. Data indicate that declines in unemployment rate will be very small this year. In 1994, unemployment rate is expected to move down a bit faster, but still at uncomfortably high levels. Main industries expected to experience problems in employment are defense and defense-related industries, nonresidential construction, airlines, apartment housing (this year), oil extraction, clay, stone and glass products, insurance, and some segments of instruments and banking industries. The largest new-job provider this and next years will be the health care and those industries that supply the health care segments. …

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