Economists tend to flock together when it comes to economic forecasts. And many right now are predicting that growth in the second half will increase to between 3.5% and 3.8%, which, while better than the first half, is certainly no boom.
But some economists see the consensus view as far off the mark, either too optimistic or too pessimistic.
Among the most pessimistic economists is Robert Marks, president of Siff, Oakley & Marks Inc., a New York consulting firm. Marks predicts that a "mild" recession will begin in this year's third quarter and will continue through the first quarter of 1987.
- Depressed conditions in energy and non-residential construction will continue to hold back capital spending. The energy industry, hurt by tumbling oil and natural gas prices, and non-residential construction, suffering from high vacancy rates and overbuilding, together account for 40% of capital spending. But low factory operating levels and low demand for domestic capital goods will mean that the industries accounting for the remaining 60% of capital spending "aren't likely to increase fast enough to offset" the weak conditions in energy and non-residential construction, Marks says.
- Continuing slow growth in personal incomes, which will restrain consumer spending. Low corporate profits and cost-cutting pressures are restraining growth in wages and employment, which will force consumers to watch their pocketbooks more carefully and thus hurt sales of automobiles and other durable goods.
- Continued inroads of imports will continue to restrain sales of domestic products. Improvement in the U.S. trade balance is still another 12 months away, Marks says, partly because much of the nation's foreign trade is with countries such as South Korea, Taiwan, Hong Kong, Canada and Mexico, whose currencies have either declined or held steady against the dollar. Marks predicts that economic growth will actually decline by 0.2% in the third quarter, 0.7% in the fourth and 1.6% in the first quarter of next year.
In contrast to Marks, one of the more optimistic forecasts comes from David Bostian Jr., president of a New York economic consulting firm bearing his name. Bostian predicts that economic growth will pick up to 4.1% in the current third quarter and 5.5% in the fourth.
Bostian says the full impact of lower interest rates, lower energy prices and higher financial asset prices will finally be felt in the second half. The impact has been delayed longer than usual, in part because uncertainty surrounding tax reform has stifled corporate and consumer spending, Bostian says.
"You have a few sluggish quarters and other economists get discouraged," Bostian said. "History shows that very sudden changes in real GNP (gross national product) growth rates seem to come at times when people least expect them."
Another optimist is David A. Levine, economist at the New York investment research firm of Sanford C. Bernstein & Co. He predicts that economic growth will increase by 6% to 8% over the next year.
Levine says the boom will be ignited as manufacturers rebuild inventories. Manufacturers cut production and inventories in the second quarter in the face of weaker than expected demand. But now, with low inventories, manufacturers are set to increase output. That in turn will boost employment and wages for consumers, who will boost consumer spending, Levine says. When inventory growth finally exceeds growth in consumer demand, in about a year, the boom will end, Levine says.