Slower Growth With lmprovement After Mid-Year

by Dr. Raymond Jallow Senior Vice President and Chief Economisl United California Bank Los Angeles, Ca.

? WO over- I riding concerns in the economy for the year 1980 are the rate of inflation and the currently high rates of interest and tight money markets.

Inflation, with the passing of the bulge in oil prices, will continue at unacceptably high rates. The Consumer Price Index is projected to increase by 9.50/o in 1980 compared with a 130/o increase so far in 1979. Interest rates are expected to rise further, even beyond the recently established record highs, but should begin to decline toward midI 980.

Real GNP is expected to decline in the first quarter, stabilize in the second, and begin posting modest gains in the second half of the year. The average real growth in GNP for the year is expected to be 0.50/o

(9.20/o in dollar terms), down from the small rise of 1.50/o estimated in 1979.

The construction industry in 1980 is expected to show only modest growth in dollar volume, which will translate into a decline when adjusted for inflation. The western states, led by California, will continue to perform relatively stronger than the rest of the nation throughout the year.

Residential buildine. which coffififthsof the total dollar volume of U.S. construction spending, is predicted to edge down to $97 billion in response to a further decline in new housing starts and a decrease in new home completions.

Qq4mercia! building is expected to@st performance of all components of the total construction industry, due to continued strength in office building. A gain of 14% is anticipated in 1980, following increases of 23% and 260/o in the previous two years.

Industrial buildine in the U.S. will-refiEEI- somffipact of the slowdown in economic activity, with a rise of l0oh projected for 1980. After the impact of inflation, this will represent only modest growth in real terms.

Public construction. which has exp-eriencecl wkle swings in recent years, appears likely to show a gain of close to 100/o in 1980, in contrast

Sfory at a Glance

Home construction likely to accelerate in California in second half of 1980...home improvement outlook brighter than new residential construction... in summary: slow and declining first half, modest recovery in the second half.

to an increase of less than 30/o estimated for 1979. Increased distribution of federal funds to state and local governments is expected to account for the larger increase during 1980. However, when adjusted for inflation, public construction is unlikely to show any growth in real terms.

In spite of the sharp rise in mortgage interest rates during 1979, a severe decline in housing starts similar to the 1974-75 period is not likely in 1980. This is largely due to the preservation of liquidity in institutions which lend to the housing and construction industry through: (a) their offering of consumer money market certificates tied to the yield on Treasury bills; (Please turn to page I 17)

For more forecasts

See page 24

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