Expansion to continue

By Arnold A. Dill Senior Vice President Chief Economist The Citizens and Southern National Bank Atlanta, Ga.

IIY outlook

IUlfor 1984 is based on the following assumptions: that the Federal Reserve permits the basic money stock to rise about 6Vo in 1984; that federal government spending will increase about l09o compared with 8.590 in 1983, and that the federal deficit will be around $195 billion in calendar 1984 versus $185 billion in 1983.

These monetary and fiscal policy assumptions should be consistent with the economic expansion lasting through 1984. However, on a quarterly basis, the peak gowth for this expansion probably occurred in the second quarter of 1983. It is typical for growth to be most rapid in the early stage of an economic expansion. Nevertheless, on an annual average basis, growth of total spending (GNP in current $) should be 9s/o to llqo next year, up from 890 in 1983. Real output of goods and services should grow about 590 on average next year, up from 3.390 in 1983. The overall inflation rate should be 4s/o to 6t/0.

Interest rates rose in the last half of 1983 after bottoming out in May. Rates are expected to remain high next year and the average mortgage rate in 1984 will probably show little change from the 1983 average. The major reason that interest rates are at such high levels relative to inflation rates is the high level of the federal deficit which keeps upward pressures on interest rates. The high

Story at a Glance

Spending, real output of goods and services increasing interest rates remaining high. .housing starts at 1.75 million. .lumber and wood product wholesale prices will rise about 8o/o. . .non-residen. tial construction robust.

level of interest rates relative to inflation is a depressant on all types of investment, including housing. High rates have also been a factor keeping the dollar very strong in foreigrr exchange markets, which has hindered exports and encouraged imports. The dollar is expected to slip in 1984, but by only about 290 on average compared to 1983.

The above economic assumptions would also be consistent with housing starts of about 1.75 million compared with an estimated 1.71 million in 1983. The rise in long term rates in the second half of 1983 will

(Please turn to page 22)