Another view of the market

Philip Kuharski Vice president & Fidelity N{utual Spokane, Wa.

HE exercise of forccasting market conditions is based on certlin principles:

First, the forecaster assumes that most of the complex array of variables that car-r affect business and society will not change drastically.

Second. the assumption is made that most of the economic relationships between the variables arc still va1id. Finally, the prognosticator develops an integrated nrodel or plan. based on expected changes fbr a f'ew key variables.

Our view is that during 197(r. the iluti0nal 0fonsply will continlle lr, tecovcr fr',tnr the nrost scverc recession since 1937. Our basic planning nunrbcrs are as follows:

1975 1976

economlst Savings Ban k

It is evident that our bank expee-ts generally higher rates by the end of 1976 i'or all sectors of the nrarket. ln summary, 1976 rvill bc a recovery year, but the nagging problems o1' inflation. unemployment. relatively I'righ lnterest rates, and generallv. underutilization o1' our productive crpacrty rvill still be with us. Continued dedication to improving productivrtv' and quality results must be a major goal o1' our free enterprise system.

Year-to-year change in nt'1. production (current dollars)

Year-to-year change in nt'1. production (real dollars)

Rate of change, consumer price index

Average annual u nemployment rate

Productivity will increase at least 4i7. lnterest ratcs should moderatc during the ncxt six months, but could be subject to incrcasing pressures by late sur.nmer. Mortgage rates specilically should bc abclve 1/l',i below current rates in the spr.ing but we expect them to move baek up during the year. Past rate levels and our 1976 expectations on some o1-the key rates are as lbllows: ln essence. we expect a cor-rtinued, moderate recovery with gradual improvcment in price perlbrntancc and unemploynrent.

The other major Iactor, residcntial housing, will improve to 1 l/2 rrillion units in lt)76 versus only 1.2 nrillion units in 1975. The problent though. is that even the I -l/l nillion unit rate is quite low against thc lundanrental denr:rrtd 1'lr.'tor'. The rrrrjur iorrsl rlirrl is pricing. The problcrn will not be solved until incorrres rise beyond accumullted cost increases or urrtil signilicant changes arc mlde irr public acceptlrnce of morc nrodest rcsidential ru ni ts.

Capital spending by business will be slo."v in the first half-year but should irnprovc- in thc second halt' of 1976 as brsic nraterial necds escalate in the cconomy.

During thc year', invcntorics will not increase vcry ntuch in fact. somc industric-s rvill still be working olI excess supplies. As a rcsult. for business in general. profits should irrrprove as nru.lr aS.iQl ovlp lt)7J.