BANK OF AMERICA SEES SLOW U.S. CONSUMER SPENDING
A trade-led boom in the U.S. is
unlikely this year or next because growth in net exports will
merely offset a dramatic slowdown in consumer spending and
other sectors of the economy, Bank of America said in its
latest economic report.
    Although net exports will add 0.7 pct to GNP this year,
after reducing it by 1.2 pct in 1986, consumer spending will
contribute 1.4 pct less to GNP than it did last year.
    As a result, GNP this year is likely to expand a modest 2.5
pct, the same rate as last year, according to Daniel Van Dyke,
the Bank of America economist who wrote the report.
    "Growth in consumer spending in the United States will drop
dramatically this year because the jump in inflation will cause
a falloff in the growth of disposable income," Van Dyke said.
    Growth in U.S. consumer spending is likely to slow to 1.8
pct this year from 4.1 pct in 1986, he predicted.
    The report was released before the Commerce Department
reported today that personal income rose just 0.2 pct in May,
after increasing 0.4 pct in April, and that personal
consumption expenditures had risen just 0.1 pct, compared with
a 0.6 pct increase the month before.
    The rising cost of energy and imports is likely to boost
consumer prices by an average of 3.7 pct this year, up from 1.9
pct in 1986, Bank of America forecast.
    This rise in inflation will reduce real disposable income 
growth to only 1.3 pct in 1987 from 2.9 pct in 1986.
    As a result, Van Dyke calculated that the purchasing power
of an average family of four will increase by a modest 540 dlrs
this year compared to a surge of 1,210 dlrs during 1986.
    The slowdown in income growth is likely to cause housing
starts to drop by 4.2 pct this year and a further six pct in
1988 to an annual rate of 1.63 mln units.
    "For the first time in several years, a recession in 1988
or 1989 is more than a remote possibility," Van Dyke said.
    Currently, U.S. growth is fragile and depends heavily on an
improvement in trade. "However, with protectionist attitudes on
the rise in this country, this source of growth is at risk," he
added.
 Reuter
