Better but no boom

By William B. Conerly, Ph.D. Vice President and Economist First Interstate Bank of Oreeon

IEOOD enough to make a profit, Ybut not good enough to bail anyone out from stupid mistakes. That is First Interstate's evaluation of the 1992 economy. Both consumer and business spending will be better, but no boom is in sieht.

The recessio-n is over, an observation that most of my fellow economists agree with, although most business manasers dis- agree. This is not just another example of economists getting no respect. If we locus on changesare things improving or worseningthe economy is clearly improving. If we focus on levelsare sales high or are they lowthings look pretty bad. The economy has not regained all of the ground lost in the recession, but it is risine. Recovery is anemic. It is not sJtting any records, and we anticipate it will show growth rates less than half of those usually coming out of recessions. Consumer spending will increase next year. However, due to concerns about debt levels, look for it to increase just in pace with incomes, about 3Va plus inflation.

Homebuilding will look much better next year, but almost anything short of disaster would look better than 1991. We have a shot at 1.3 million starts next year, but credit availability for developers will be a limiting factor.

The so-called credit crunch is really a reversion to the rules of the 1950i and 1960s. The country can enjoy a healthy construction industry without lots of credit, as we did in the past, but the transition from highly leveraged deals to more conservative financins is causing great difficulty.

Repair and remodeling is bucking the trend somewhat, especially in growing regions, such as the Pacific Northwest. The rest of the country may see the trend next year, as demand for more or improved space grows faster than credit availability.

Inflation is likely to move even lower next year, around 3.5Vo on the Consumer Price Index. The Federal Reserve is very serious about this, so our forecast is likely to be more pessimistic than optimistic.

Lumber prices will show some strength. Part of the gain will come from increased demand, part from reduced timber availability.

Story at a Glance

Anemic recovery... increased spending, lower inflation, 17o interest rate increase... stronger lumber prices...1.3 million housing starts if credit allows.

Interest rates are at the bottom now. Look for abolt l%o increase in shortterm rates next year, but only little gain in long-term rates.

1992, an election year, could have a slogan of its own, one that sounds very much like a political campaign: "Not great, but better than some others we've seen."