WASHINGTON - The latest reports on jobs, consumer debt,
production and the like are persuading many economists that the
economy is a lot stronger these days than they were predicting just
a few weeks ago. Wednesday's announcement of an 8.9 percent jump in
home construction last month is further evidence of the economy's
The reason seems to be a consumer livelier than economists
expected, particularly after the October rout of the stock market.
Even without the rout, however, this was to have been a period when
consumer spending, which had been pulling the economy through most
of the last five years, would run out of steam.
The assumption had been that consumers would pass the baton to
industry, which would sell more of its goods abroad, thanks to the
cheaper dollar, and build more factories at home. During this
first-quarter transition, the economy would slow down considerably
and perhaps even slip into a recession.
But after pinching pennies for a month or two after the market's
plunge, consumers are stepping up their spending again. They are
still a lot more restrained than they were in recent years, but with
industry pulling the weight expected of it, firmer consumer spending
augurs a more robust economy than most forecasts showed. There is
more talk now of inflation, the price the economy sometimes pays for
strong growth, than of recession.
Right after the market collapsed, about half the members of the
economics community revised their forecasts for the first quarter of
this year from very slow growth, an annual rate of 1 percent or so,
to a recession. But the ensuing months showed that consumers were a
lot less frightened than the economists, so most economists revived
the predictions of slow growth. Because of the latest developments,
many are raising their growth forecasts to 2 percent, from 1
The one economist who can really influence the course of these
events - Alan Greenspan, chairman of the Federal Reserve Board - is
not saying whether he will change his own forecast, made last month,
of 2 percent to 2.5 percent growth for the full year.
At that time, Greenspan was saying that the economy seemed
balanced between prospects of a recession and prospects of strong
growth and rising inflation. But in congressional testimony
Tuesday, he discounted the likelihood of a recession this year and
warned repeatedly that inflation could rise.
When Greenspan speculates about rising inflation, the markets
know he is also thinking about arresting it quickly if it should
appear. That usually means the Fed will raise interest rates, which
in turn makes it harder for consumers and businesses to borrow,
resulting in a slower economy.
Like Greenspan, other economists see a stronger economy being
helped along by the consumer. James M. Howell, chief economist at
the Bank of Boston, said:
``I was in Pittsburgh last week talking to about 20 chief
executive officers, and they were all talking about this. Has the
consumer come back? The answer is yes. I didn't think he would.''
All this is relative. For four years after the 1981-82
recession ended, consumers borrowed and spent with rare abandon and
carried the economy into one of its strongest stretches of growth.
Though consumer spending has cooled off a lot since, it is clearly
rising again after declining in the final months of 1987.
In general, said William Gibson, economist at the Continental
Illinois National Bank and Trust Co. of Chicago, ``the forces of the
economy have added up to stronger growth than expected.''
``I would say the consumer is looking good but not great,'' he
said. ``Consumers are not feeling as good about the economy as they
were early in the recovery a few years ago, but they are certainly
not pulling the economy down.''
Consumer spending, which accounts for two-thirds of all
spending, is a fairly stable, if mighty, engine compared to home
building, automobile sales or other smaller forces whose
whipsaw-like changes in fortune can cause booms and busts in just a
few months. …