Gradual decline in '88

By Peter Ganahl President Ganahl Lumber Co.

(Please turn to page 69) in the U.S. economy. The market may have been expressing concern that these imbalances - in trade. in the federal budget and in savings pat- terns were not going to be resolved. The behavior of the stock market has cast a spotlight on these problems, however; this makes it more likely that both government and private responses to these imbalances will be more vigorous in 1988.

Story at a Glance Slower future growth

housing industry likely to weaken.. serious imbalances in the U.S. economy must be resolved . good third quarter indicators not expected to be reflected in'88 market.

A few statistics reveal the extent of the imbalance in the trade position, in federal budget patterns and in household budgets. The federal budget deficit last year, at $221 billjon, was 5.3% of national output, up from2.60/o in 1981. The international balance of payments deficit also deteriorated to more than $150 billion last year. Finally, households have been spending at a rate that exceeds their income growth; the personal saving rate has declined from 7.50/o of after-tax income to barely 4o/o in the last six years.

These imbalances are all related.

f HIS year is going ro be a tough I act to fbllow. lt was rhe fifrh straight growth year for our industry in Southern California. For our com- pany it was the best of the five. That is probably true for other contractor-oriented lumber and building material suppliers in this market.

Where do we go from here?

Probably down!

This is hardly a radical predictioir given that we've been in the largest peacetime business expansion of this century. You don't have to be an economist to see that we've passed the pinnacle of the business cycle.

How fast are we going down and how far to the bottom? This mav be the good news for 1988. The cohditions that precede our building recessions are: high interest rates, overbuilding of housing and falling consumer spending. Although these conditions do not exist in the fourth quarter, they may in the next few months.

If Christmas sales are lousy, this is the first signal (second if you count Black Monday) that the roller coaster is picking up a little speed as it starts down. But even if this happens, our economy won't immediately be a disaster area. The Southern California construction economy will merely be making the transition from bonanza times to normal times.

Interest rates are still favorable and, for reasons unknown to me. we haven't overbuilt like we usuallv do. What this means is that 1988 willbe a year of gradual decline that we should be able to react to.

That's how fast (or slowly) I think we're going down . , but how far? I don't know. My guess would be that 1989 will be below 1988. but it's onlv a guess. Remember, I make my living reacting to what the future brings, not by predicting it.

Story at a Glance

No signs of recession at present... lousy Christmas sales could start downward trend probably won't hit bottom until 1989.