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

By Simunek, Vladimir J. | The Journal of Business Forecasting Methods & Systems, Fall 1993 | Go to article overview

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


Simunek, Vladimir J., The Journal of Business Forecasting Methods & Systems


In the next two years, economic growth is expected to remain slow to moderate. The economy will continue expanding without any recessionary downturns. K.E.D.I. calls for overall expansion at 2.2% rates this year, 2.6% next year, and close to 3% in 1995. For the next two years, unemployment will remain high, though it will decline in small margins. Inflation will remain at low levels in the foreseeable future. Interest rates are expected to remain low. Short-term rates will be increasing though in small margins. Long-term interest rates are expected to rise in 1995 and afterward.

REAL GROWTH

In the next year, the major factors which will contribute to the growth of the economy are expected to be business capital outlays( notably spending of businesses on machinery and equipment) and consumer spending on durables (notably motor vehicles, household durables and building materials). The other factors which are not as significant are: consumer outlays on services and nondurables, and spending of state and local governments on goods and services including public projects and wages and salaries. Measured in growth rates of constant 1987 dollars, in 1994 business capital outlays on machinery and equipment are expected to increase by 4.5% compared to 5.8% estimated for this year. Consumer spending on durables is also expected to increase significantly. Spending on motor vehicles and parts will increase next year by: 3.6%; spending on households durables by 2.8%; and spending on building materials by 2.1%, measured in constant 1987 dollars. In number of units, sales of cars are expected to increase by 2.5% and light-duty trucks which include pick-ups, jeeps, vans, and recreational vehicles, by 1.8%. Factors which will slow down the next year's expansion are Federal expenditures on goods and services, business outlays on nonresidential structures, multi-family housing and exports. In constant 1987 dollars, Federal budget expenditures, which are a part of Gross Domestic Product, will decline by 2.8% mainly due to defense budget cuts. Construction of new business plants and office buildings and apartment housing are expected to remain weak. Data show that next year business outlays on construction will increase by a small margin of 0.2%. Apartment housing is expected to regain some vigor. However, it will still remain at low levels compared to expansion it experienced in 80's. Next year, exports are expected to increase in small increments. Data point to a slow growth in exports of machinery and equipment, weakness in chemical products and fabricated metal products, somewhat faster exports of agricultural products, and flatness in exports of services. On the other hand, imports are predicted to grow at a faster pace than exports, notably of crude materials, energy, and consumer products, which will make the U.S. merchandise balance extremely negative.

The outlook for 1995 presents a somewhat different picture. Compared to the next year, the main contributors to the economic expansion are expected to be the overall consumer spending on goods and services, slower but still strong business capital outlays on machinery and equipment, and improved performance of exporting industries. In 1995, consumer outlays are expected to increase significantly, compared to 1994. Data show that consumer demand for motor vehicles and parts will continue to be strong. Strong demand is also expected to continue for goods and services related to housing. The constant 1987 dollars data on consumer spending on nondurables, notably textile mill products, apparel, footwear, fast food, travel, maintenance and repairs, entertainment, and health services, show significant increases, compared to the corresponding data of 1994. Data point to main determinants causing the expected shift in consumer attitudes in this year: Increasing employment, higher average wages, more income from investments in securities and less pain from higher taxation imposed in 1994. …

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