How long, how strong the US recovery: a roundup of opinion
Many brokerages, banks, and economic-research firms publish periodic newsletters on economic trends. As a service to readers, and without endorsing any particular views, the Monitor presents excerpts from some of these newsletters.m
The benefits of lower oil prices will not be felt on the economy, inflation, and interest rates until well into next year. A moderate recovery is under way which will be restrained but not shortcircuited by current high nominal and real interest rates. The prospect is for a significant earnings expansion in 1983 and 1984. The momentum of this earnings advance should reach its peak in the winter of 1983-1984.
-Drexel Burnham Lambert Inc., New Yorkm
It is difficult to compare historical periods, but it is at least arguable that the adjustments of the past 17 years have been comparably profound. We have seen, since the middle 1960s, the shattering of many tenets of conventional investment wisdom, a shattering comparable in many ways to the destruction of faith in common stocks which took place in the 1930s: 1968 saw the demise of the ''gunslinger'' investment manager, and 1974 laid to rest the 'one-decision-stock'' theory, under which professionals blithely paid blatantly unjustifiable prices for ''Favorite 50'' stocks, many of which are nowhere near those prices 11 years later. The magnitude of the price correction produced by these changes is properly understood when one recalls that in the past 17 years no upside progress in common-stock prices has occurred in the midst of a wildly inflationary environment.
-Delafield, Harvey, Tabell, Princeton, N.J.m
The advance of real growth in the second quarter is likely to be less than that of the first quarter. However, viewed more qualitatively than quantitatively, the second-quarter advance may be the stronger of the two quarters. For example, the performance of both personal income and retail sales is likely to be better and the breadth of the recovery somewhat broader in the second quarter. In addition, judging by some of the indexes, confidence seems to be improving.
-Griggs & Santow Inc., New Yorkm
The huge projected federal borrowing demands in the current fiscal year and subsequent years have served to heighten speculation over who is going to buy all the federal debt. Traditionally, commercial banks have been large buyers of Treasury debt (and other investments), particularly in periods, as at present, of recession and early recovery when loan demand is weak.
However, there has been in the first three months of 1983 a distinct waning in large bank appetites for US government issues and other securities. . . . Additions to bank investment portfolios have dropped off in the first quarter of this year to a pace that is about half of that of the final quarter of last year. More significantly, in March these larger banks chose to scale down their investment portfolios, despite continued weakness in business and consumer loans.
-Aubrey G. Lanston & Co. Inc., New Yorkm
The recovery pace will almost surely be less than the 6 to 7 percent average GNP growth which has typically occurred in the first year of recovery. Almost all statistics are less robust than in past cycles. The leading indicators are rising more slowly . . . and the coincident indicators are lagging further behind. New orders, which were strong in January, were weak the following month. Industrial production was up only 0.3 percent in February and probably no more than 1 to 1.5 percent in March. Personal income has edged higher, but only through a reduction in inflation has income held its own in real terms. Retail sales and auto sales have been rather sluggish since late last year.
-T. Rowe Price Associates Inc., Baltimorem
As the second quarter of the economic recovery emerges, questions regarding its sustainability and robustness have clearly surfaced. High real interest rates, a strong dollar, and a hesitant consumer are reasons often cited for expressing concern regarding the economic outlook. In our judgment, these factors are important constraints on the economy's performance, but do not necessarily imply that the recovery, which is in its embryonic stage, will be aborted. Although a slower-than-typical first year recovery may emerge from these constraints, some important benefits could accrue, setting the stage for a more enduring and sustainable economic upturn. High real interest rates and a strong dollar lessen the incentive for speculative and anticipatory activity while helping to maintain a general disinflationary trend. Moreover, the competitiveness in the marketplace that these factors foster should help maintain a corporate ''mind-set'' which is focused on Productivity, Profitability, and Reliquification.
-Smith Barney, Harris Upham & Co., New Yorkm
Despite the significant drop in US interest rates from last year's peak, we still believe the dollar should be a very strong currency over the long term, and the primary reason is bank deregulation in the United States. The consensus still believes that the dollar will weaken as domestic interest rates continue to drop. Current currency-market wisdom says that the US trade imbalance should release a flood of dollars into world money markets and depress the value of US currency. Moreover, the dollar could weaken because the drop in US interest rates has made dollar-denominated investments less attractive to foreign investors. And foreign investors are no longer quite so eager to flee to the ''safe haven'' of American dollars, because the bailouts of debt-ridden developing countries by international banking agencies have temporarily eased fears of major defaults. Our view differs for two basic reasons: (1) We expect US short-term rates to stay permanently high, in the 3 to 4 percent zone; and (2 ) we expect the Europeans to drop their rates, following the US lead. Our near-term flash point is 4.8 percent of the federal funds rate. The dollar, which weakened from mid-November, appears to be stabilizing and is thus at the end of its expected near-term decline.
-Dean Witter Reynolds Inc., New Yorkm
