The nation's economic soothsayers have a modest, but welcome, present for all of us this Christmas: The economy may not be quite as blah in 1978 as they thought.
At this week's meeting of the American Economics Association in New York, prognosticators are expected to be adding enough tinsel to their forecasts to make them glow a wee bit brighter than they first appeared earlier this month. And signs are they'll be continuing to revise them upward in coming days as well.
When the economists began churning out their forecasts a few weeks ago, the outlook seemed to be merely for less of the same - less -robust economic gorwth than in 1977, a smaller reduction in the unemplayment rate and only a scant pickup in investment. Now, however, more and more analysts are boosting their forecast - to show 1978's performance at least as good as this year's. And the number is growing every day.
The latest versions predict:
The economy is expected to grow at a moderate 4.6 to 4.9 per cent pace in 1978 - virtually duplicating this years' estimated 5 percent increase, though with a somewhat different mix of components.
The nataion's unemployment rate, which has been on a plateau since April, is likely to edge downward - but only slightly. Forecasters say joblessness may decline to 6.4 per cent of the work force by late 1978, from 6.9 per cent now.
If there 's any grinch this Christmas, it may be inflation. Although a few forecasters are more optimistic, most believe the price spiral will accelerate somewhat from the present 6 per cent pace - possibly to 6.5 per cent.
Analysts see somewhat higher food prices - mainly because of higher food processing and cattle prices - and increases in prices of energy and foreign imports. (The rise in import prices stems mainly from the recent drop in the value of the dollar.) Albert T.Sommers, The Conference Board's chief economist predicts that "the inflation rate may be the big issue by next spring."
The increased optimism over the economy's growth rate is a last-minute development. Only a few weeks ago, it seemed this winter wasn't going to be the season for economists to be jolly since the forecasts all had been calling for a visibly slower growth of 43 per cent in 1978, a slight dip in unemployment (to 6.7 per cent) and a 6 per cent inflation rate. And that assumed a tax cut of $20 billion.
Economists are almost unanimous in believing that President Carter's $25 billion tax-cut package won't make much difference - at least in the outlook for 1978. For one thing, carter's porposed reductions wouldn't actualy take effect until October 1 - too late to affect the economy in 1978, given the usual lags before a tax cut's impact is felt. Analysts say there may be some anticipatory boost when Congress passes the bill, but no major economic gain.
For another, the $25 billion total, while larger than what Carter previously had been considering, is widely regarded as too small once inflation and the new increases in Social Security and energy taxes are taken into account.
"What they'rereally doing is buying a little insurance," says David L. Grove, an economist for IBM Corp. "If you take the tax cuts the administration is talking about, they really are not going to move the economy much farther."
What has buoyed the forecasters in recent days is the spate of encouraging economic statistics, both for the current quarter and the July - through-September period. Revisions published last week showed the growth rate for the third quarter at a more acceptable 5.1 per cent pace, rather than the sour 3.8 per cent pace reported in preliminary estimates.
And this month's statistics have shown unexpectedly large gains in such key sectors as personal income, housing starts and retail sales - implying what to many key forecasters is a relatively robust fourth quarter.
"Whatever happened to the second-half slowdown?" quips Arthur M. Okun, the former Johnson administration chief economist, who had predicted a 1976-like dol-drums-period for the final months of 1977.
As a result, economists of all stripes are becoming more ebullient. Alan Greenspan, former President Ford's econimic adviser, gloats when he says, "The easiest forecasts I can make today is that the forecasts of the forecasters will get brighter." Says The Conference Board's Sommers: "I have an uncomfortable feeling that all of us are under-estimating what's likely to happen in 1978."
The prognosis is that the more-robust than-expected fourth-quarter pace will run down already scant inventory levels, which then will need to be rebuilt during the first half of 1978.
After that, the government's tax cut - or at least the expectation of it - will take over. Otto Eckstein, president of Data Resources, Inc, the economic consulting firm says, "We're going into 1978 with a pretty good momentum."
To be sure, the fact that the outlook isn't as bleak doesn't mean it's Christmas - at leastin economic terms. A 5 per cent growth rate still has its limitations. And there are the traditional caveats ghosts of recoveries past.
For example, virtually all of the private econimists surveyed by The Post this past week affirmed the 1978 per cent pace means President Carter won't be able to achieve his economic goals - a 4.75 per cent unemployment rate by 1981.
"There's no question that this kind of growth rate is well below target," says Lawrence R. Klein, the Wharton School forecaster who head brain-trust during the 1976 campaign.
Agrees Walter W. Heller, the former Kennedy administration economic adviser: "It sounds as though the Carter people have lowered their sights some." Heller calls for a $35 billion tax cut to put the economy on track.
The economists are remarkably close together when it comes to the details of the 19Consumer spending will fall off some from the 1977 pace - particularly in view of the higher payroll taxes mandated by the recent Social Security legislation. Although personal consumption won't nosedive, it no longer will lead the way for the recovery. George L. Perry, the Brookings Institution economist, says, "I wouldn't expect to see much from consumers until the tax cut comes through."
Business investment won't be anything to write home about, but isn't likely to be as sluggish as forecast a few weeks ago either. Analysts figure enough industries will be brushing against the upper limits of their production capacity in 1978that plant and equipment outlays may strengthen as the years goes on. Combined with incentives in the Carter tax-cut package - and lower relative prices in the capital goods sector - it could speed things up markedly.
Corporate profits are expected to rise moderately - say, by 9 per cent or more after taxes and inventory value adjustments - enough to continue this year's generally favorable business climate. The 3 per cent cut Carter has said he will propose in the corporate tax rate should help even further, but won't take effect until later in the year.
Housing starts will continue at just below the 2.1 per cent annual rate expected for 1977, but the sector won't add any new thrust to the paace of the economy.
The one big spoiler is inflation. Although mathematical computations call for about the same pace as this year, there are enough potential danger spots to make forecasters push their projections higher. Most are relatively small ones by themselves - the prospect of higher energy prices, the rise in payroll taxes, the boost in the minimum wage and higher farm price supports.
But together, economists fear they could add up to a big jump in prices. At the outmost, Beryl W. Sprinkel, vice president and chief economist for Chicago's Harris Trust and Savings Bank, forsees a possible 7 per cent rise in consumer prices next year. Most other economists are decidedly less pessimistic, but the consensus still is for a speed up from this year's 6 per cent pace.
There also are the usual uncertainties.
The biggest, again, is over Federal Reserve policy. Most analysts expect enterest rates to be rising anyway next year, even if Fed policy continues as is. But liberals worry, as usual, that the central bank may shift toward more tightening if inflation begins speeding up again - and possibly choke off the recovery as a result.
Second on the list is concern about the international situation - particularly the turmoil over the recent slide of the dollar. Greenspan, for example, worries that if the dollar begins to plunge more seriously, it could send interest rates here soaring - and damage the continuing upturn. And other economists fret that the trade deficit may begin to exert a drag (expectations are it will continue in 1978 at about the same $26 billion level projected for this year).
Finally, Klein warns that the coal strike may hurt the economy if it lasts beyond 60 days or so - first by prompting new hoarding and later, if idleness continues, by cutting into energy supplies.
Still, conservatives contend there's something to be said for the slower though more stable, growth rate now being predicted - even with all the caveats.
"The best thing is that everything appears to be pretty well in balance this year, "says Murray L. Weidenbaum, director of the Center for the Study of American Business in St. Louis. "It's the kind of situation that's more likely to be sustained. "
In fact, although longer-term projections necessarily are more murky, few economists are predicting any serious slowdowns for 1979 and beyond.
DRI's Eckstein, onetime economic adviser to former President Johnson,says the immproved prospects for 1978 have "virtually wiped away any danger that the economy will fade out" in 1979 and later. Indeed, IBM's Grove believes there may be a resurgence by the end of the decade - if only because the industrial world will be over its adjustment to the oil price hike and ready for new investment.
Meanwhile, the forecasts are getting brighter with each passing statistic, and the economists are becoming merrier, which is a nice bit of cheer to stuff in anyone's stocking on a frosty Christmas morn. CAPTION: Picture 1, ALAN GREENSPAN . . . forecasts will get brighter; Picture 2, WALTER W. HELLER . . . calls for $35 billion tax cut