Bush May Be Riding Small Economic Wave

A MODEST pickup of economic growth in the United States should ensure President Bush's reelection in the fall.

That's the prediction of Roger Brinner, chief economist of DRI/McGraw-Hill, a Lexington, Mass., economic consulting firm. His political forecast is based on his economic forecast - that national output will be growing at around a 3 percent annual rate for the rest of the year, with unemployment dropping as low as 6.75 percent by election day from 7.3 percent last month.

Most economists agree with Mr. Brinner that the pace of business activity is stepping up.

"Economists certainly are getting more optimistic for this year," says Robert Eggert, editor of Blue Chip Economic Indicators in Sedona, Ariz. He has just completed a monthly survey of 50 of the nation's top economic forecasters.

If this consensus view is right, Mr. Bush will win with 52 to 53 percent of the vote, says Brinner. That number is based on a simple forecasting model that looks at such factors as incumbency of the president, the growth of real income per capita, and the inflation rate. The model, Brinner notes, has "never missed a winner" since 1948.

But there are more gloomy economists. Lacy Hunt, chief economist in the US for HongkongBank Group, says growth will be barely positive in the current quarter and run a little under a 1 percent annual rate for the remainder of the year. He says unemployment could climb to 7.6 or 7.7 percent by election time. "The economy needs more stimulus from the Federal Reserve to recharge the batteries," says Mr. Hunt.

Last week a group of about 100 prominent economists called on Washington to give the economy a further boost with $50 billion more in federal aid to state and local governments, a tax credit to encourage businesses to spend more on plant and equipment, and lower short-term interest rates.

The group rejected proposals for personal income tax cuts from President Bush, congressional Democratic leaders, and Democratic presidential candidate Bill Clinton.

One concern of some economists has been a recent decline in the supply of money - the fuel for economic activity. M2, a measure of money that includes currency, checking accounts, and some savings accounts, fell $10.2 billion in the latest week measured. This is the money measure Fed officials usually follow most closely. Latest statistics mixed

"If money doesn't pick up in April, then I would be concerned," says Paul Kasriel, an economist with the Northern Trust Company in Chicago. "I think the Fed will be sensitive to it."

The latest statistics are mixed - as usual in the early stages of an economic recovery. Sales of domestic cars improved modestly in late March from earlier in the month.

But construction spending in February was down by 0.4 percent. Factory orders were higher in February. But so were first-time claims for unemployment insurance. The unemployment rate remained at a seven-year high of 7.3 percent in March. Employers added only 19,000 people to their payrolls. Machine tool orders were up a handsome 6.4 percent in February.

Optimists such as Brinner point to brighter retail and housing sales in January and February. "Furniture and appliance sales rose 5.3 percent (excluding inflation) from December to February," he notes. "Auto spending increased 3.7 percent; all other durables added together jumped an estimated 7.2 percent, and spending in the semi-durable clothing and shoe category increased 4.5 percent."

Even more cheerful, Patrick Corcoran of Prudential Economics, sees economic output growing at a 3 percent annual rate in the first half of this year and a 4.5 percent rate in the second half. "Inflation is not a problem either," he says. Buyers stayed home in March

But Mr. Hunt figures consumer spending stalled in March. Consumers, he says, enjoyed the price-cutting wars in January and February, but stayed home when store bargains dropped off in March. Further, he notes that real disposable per capita income - the money people actually have to spend - was down 1.1 percent in February from the peak level in March 1990. Total household debt last year hit a new record of 96.3 percent of after-tax personal income. The consumer savings rate for the first two months of t he year was only 4.6 percent on average, far lower than in the early stage of the past five recoveries. Bank lending "continues to contract." Exports show "disturbing weakness," affected by a recession in Japan and economic slowdowns in Europe. Defense spending is heading down.

"The economy is able to move up - but very haltingly," he concludes.

Brinner, contrariwise, says, "It is a strange notion we can't afford what we are spending." He notes how many families are benefiting from inflation-adjusted pensions or wages and from lower interest rates on mortgages. "Families headed by a 35- to 44-year-old individual are the pivotal players," he holds. "This group spends more per year on new cars than any other age group, and they do this in spite of the heaviest mortgage payments."