U.S. ECONOMY SHOWS PROMISING SIGNS OF GROWTH
The U.S. economy is showing some
promising signs of accelerated expansion despite the
sluggishness of the fourth quarter last year, private
economists say.
    Some of the slowness experienced in the October-December
period had been expected to spill over into the first quarter
this year, as the tax law changes that went into effect in
January slowed business and consumer spending.
    But some of the latest economic data show signs of
surprising strength in the U.S. economy, although some
economists remain cautious about the outlook.
    The Commerce Department reported today that new orders for
durable goods in February jumped by 5.7 billion dlrs, a six pct
rise, to 101.2 billion dlrs. Even excluding volatile defense
goods, durable goods orders rose a healthy 3.8 pct, the agency
said.
    The February numbers surpassed the expectations of many
financial analysts, whose predictions ranged from flat to
increases of up to five pct.
    The January/February employment statistics suggest the
Gross National Product will show a healthy rate of growth for
the first three months of this year, said Lyle Gramley, an
economist with the Mortgage Bankers Association.
    The U.S. jobless rate in February and January was 6.7 pct,
the lowest rate since March 1980. The number of new non-farm
jobs rose by 337,000 in February after a 319,000 gain in
January and a 225,000 December increase, the government said.
    The employment data suggests a GNP annual growth rate of
about three to 3.25 pct in the first quarter, said Gramley.
    Much of that will be attributed to businesses rebuilding
their inventories and is not likely to be sustained in the
second quarter, Gramley said. He expects a slowdown in the
second quarter with smaller increases in personal consumption
and government spending. He also sees residential construction
declining mostly for multi-family housing units.
    Fidelity Bank senior economist Mickey Levy said some of the
fourth quarter slowness will continue.
    Levy predicts GNP will grow at a scant 1.5 pct rate in the
first quarter of 1987, accelerate during the second quarter and
show a brisk 4.5 pct annual rate in the third quarter.
    The key to both forecasts is a marked improvement in the
U.S. trade balance which is expected because of the decline in
the dollar's value over the last year and half.
    "The improvement will be gradual and long lasting," Levy
predicted. Most of it will be through import reduction, but at
least one-third will be due to a rise in product exports as the
prices of U.S. goods become more attractive overseas.
    The Reagan administration has predicted the trade deficit,
which soared to record levels last year, will improve this year
and the U.S. economy will grow by a respectable 3.2 pct for the
year compared with a 2.5 pct rate last year.
    As part of the effort to reduce the trade deficit, the U.S.
has been pressing West Germany and Japan to stimulate their
domestic demand for goods from the U.S. and others.
    U.S. officials believe that would help take some of the
pressure off the United States whose five years of economic
growth has been the mainstay of developing countries.
    The U.S. economy provided them with a giant market for
their goods giving them a way to earn income badly needed to
service their foreign debt.
    The government last week said the U.S. economy grew at a
modest 1.1 pct annual rate during the fourth quarter.
    There were indications of improvement in the huge imbalance
between the volume of goods imported to the United States and
those shipped abroad. The report showed a rising volume of
exports corresponding to a decline in imports despite the fact
that in current dollar terms, the U.S. trade deficit worsened
during the closing three months of 1986.
    While fourth quarter economic growth was weak, corporate
profits jumped a healthy 6.1 pct during the period, the
government said. It also reported that inflation, as measured
by the GNP price deflator, remained in check, growing a
moderate 0.7 pct in the period, the lowest rise in 19 years.
    The government also reported that consumer spending, a key
element of the five year economic recovery, jumped 1.7 pct in
February, after falling two pct in January.
    The Federal Reserve Board also reported that the
manufacturing sector, which had been one of the weaker elements
of the U.S. economy, was showing signs of recovery.
    In its latest report on current economic conditions, the
Fed said that economic activity in the various regions of the
country ranged from uneven or steady to improving.
Manufacturing activity showed signs of improvement in most
regions except Dallas where orders remained sluggish.
    Chase Econometrics Chairman Lawrence Chimerine said the
pick up in the U.S. manufacturing sector is largely due to the
drop in the dollar's value. He said he does not foresee a major
pick up in economic activity, but does not believe the economy
will slip into recession either.
    He said higher prices on imported products and wage cuts
that have helped the manufacturing sector will squeeze
consumers purchasing power.
    "That pattern is starting and will continue for a number of
years," Chimerine said. He sees economic growth hovering around
a modest two pct level for the next few years.
 Reuter
