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

This year, economy is expected to expand by 3% and in 1995 by 3.2%. Data point to a moderate growth. In 1994, main factors pushing the economy forward are expected to be consumer spending, business capital outlays, and residential construction. In 1995, increases in consumer spending and business spending will slow down somewhat. Compared to weak performance in 1994, exports in 1995 are expected to increase significantly. Forecast for prices calls for moderate increases in consumer and producer levels throughout 1994. Upward movement in prices will accelerate in 1995. Data for short-term interest rates indicate upward trend to continue throughout 1994 and year after. Long-term interest rates are expected to start moving up in the second half of 1994 and continue in the following year.

REAL GROWTH

Data indicate that in 1994 consumers will retain their strong buying power. Inflation-adjusted figures of retail sales point to 2.8% increase in 1994 and additional 2.4% in 1995. In 1994, largest increases are expected to be in sales of consumer durables, notably motor vehicles and housing-related goods. In the first half of the year, consumer spending will continue outstripping the income, and indebtedness will increase significantly. In the second half of the year, consumers will hold back, notably purchases of motor vehicles and other durables which require increase in indebtedness. Data indicate a still healthy upward movement in consumer outlays in general, but with some slowing down in sales of motor vehicles and housing-related goods. Moderate upward trend in consumer outlays is predicted to continue in 1995.

The second main factor contributing to the growth of the economy is business capital outlays, which show strong increases in 1994 and slowing down in 1995. In 1994, businesses are expected to spend 7% more on machinery and equipment than they did in 1993, and additional 5.6% in 1995.

Residential construction is also predicted to be good in both forecast years. In 1994 single-family housing starts are expected to continue their upward direction. Apartment housing will gain momentum this year and continue in 1995.

Forecast data for nonresidential construction, especially office buildings, shopping centers, malls and hotels, indicate that this segment of construction industry is not expected to regain strength in foreseeable future.

Forecasts for exports and exporting industries remain cloudy for 1994. Better outlook is predicted for 1995 and years that follow, when most of economies in the world are expected to be out of recession, which will stimulate their demand for American goods and services.

PRICES

Moderate increases in prices are expected to continue at the consumer, producer and international levels i n the first half of 1994. In the second half consumer price hikes are expected to accelerate. Largest increases are predicted for prices of energy, notably gasoline, heating oil, and natural gas. Increases in prices of consumer durables, especially prices of motor vehicles and parts, hardware, and home building and maintenance materials are expected to be higher than the general inflation rate when measured by the Consumer price index. Significant increases are also predicted for health care services. In 1994, prices of health care services are expected to increase by 5.2%, well above the 3.2% consumer inflation rate predicted for that year. Producer prices are expected to rise in the second half of 1994. Data call for increases in prices of metals, fabricated metal products, machinery, lumber and wood and products, basic chemicals, and oil.

Contrary to domestic price levels, prices in international markets, are expected, to advance only by small margins. Increases in the prices of oil are predicted. Significant gains in international price levels of crude materials are predicted for 1995 and afterward.

EMPLOYMENT

Employment outlook for 1 994 remains mixed. …

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