The overriding consideration in most thinking about the economy and markets in 1992 is that it's a presidential election year. Indeed, the stock market lately has been playing Hail to the Chief almost every day, pinning its hopes on the President's supposedly magical powers to command the economy.
But a triumphal march is premature. Stocks will cool early in '92 as the outlook for corporate earnings remains unexciting--at least through the first quarter--and as President Bush inevitably disappoints great expectations in his Jan. 28 State of the Union message.
In that speech, White House aides predict, the President will deliver his program for the economy--including ideas for tax cuts. A new investment tax credit, limited to the next 18 months, is being discussed as a spur to business investment in new equipment.
Other goodies, such as individual retirement accounts and capital gains tax cuts, would be subject to political horse trading--if capital gains taxes were cut, for example, tax rates on high incomes would likely rise. All in all, the effect on the economy won't be earthshaking. When it comes to taxes, someone's ox is always gored.
Nonetheless the economy will pick up in '92 with or without help from the White House. Look for gains in car sales; the industry could sell 14 million cars and trucks in the United States this year, up 6% or so from 1991. No big federal program will drive up sales, just the fact that people need transportation. A lot of vehicles sold in the banner car years 1985 and '86 need replacing.
Telecommunications and computer electronics will be hot, as business invests for efficiency--especially hot if investment tax credits become law.
Unemployment won't get much worse--or much better. Compared to recent decades, there aren't many new people coming into the work force this year. On the other hand, companies are wary of over-staffing in a cost-conscious decade.
Home sales will see marked improvement. The blunt fact is that interest rates are as low as they were in 1964, and mortgage lending is still popular with banks and their federal regulators. At the end of last year, home sales were already brisk around Chicago, Salt Lake City and other parts of the country outside the struggling Northeast and California.
