The U.S. economic forecast of strong growth this quarter that appeared to startle representatives of the other industrial nations at the Williamsburg summit last weekend should have come as no surprise to them. It is exactly in line with the Reagan administration's last official forecast issued in April.
Treasury Secretary Donald T. Regan told the other nations' finance ministers at Williamsburg that the U.S. gross national product, adjusted for inflation, should rise at a 5 percent to 6 percent annual rate this quarter. Real GNP growth in the third quarter might not be quite as strong, Regan said.
In April, the administration revised upward its forecast for how strong the recovery would be during 1983, with real GNP predicted to increase 4.7 percent from the fourth quarter of 1982 to the fourth quarter of this year. A forecast published in January had put growth over the four quarters at an even 4 percent.
According to the latest revision, real output in the first quarter rose at a seasonally adjusted annual rate of 2.5 percent. Robert Dederick, undersecretary of Commerce for economic affairs, told a congressional committee last week that that figure did not mean that the recovery is weak. To the contrary, he argued, the recovery could well exceed the pace for 1983 predicted in April.
However, given the 2.5 percent growth rate for the first quarter, simply reaching the 4.7 percent figure for the full year would require growth of, say, 6 percent this quarter followed by two quarters of about 5.1 percent.
Some of the officials from the other countries represented at the summit indicated they fear U.S. interest rates may be too high to permit such a recovery, or that, even worse, that rates will begin to go up again, damaging the U.S. economy and conceivably halting the incipient recovery from recession in Europe and Japan as well.
In fact, some private U.S. economic forecasters think that the recovery will go even faster than the administration expects this year. Wharton Econometric Forecasting Associates, for instance, believes real GNP will be rising at more than a 6 percent annual rate during the third and fourth quarters, and that over the full year output will be up 5.2 percent, half a percentage point more than the administration forecast.
Other private forecasters think the recovery will be less robust than the administration predictions, but none of the forecasting differences are all that large.
But even Wharton's figure would still be lower, though not much, than the average recovery following post-war recessions. That departure, the forecasters say, will be due to the high level of interest rates relative to inflation.
Moreover, many of the private forecasters are concerned that a clash between federal and private sector borrowing needs could begin to push interest rates higher than they are now. Secretary Regan assured his finance minister counterparts that this would not happen this year and that the recovery could proceed even if rates stayed at present levels.
A number of President Regan's advisers are deeply concerned that such a clash will occur sometime during 1984 or early 1985 if prospective federal budget deficits are not reduced. That concern, which has led them to favor substantial tax increases for early in 1985, has been brushed aside by several senior White House aides and the president himself.
How fast the recovery reduces unemployment, a major concern expressed at the summit, is more difficult to predict than the speed of the recovery itself. If productivity increases rapidly--output per hour worked in non-farm businesses grew at a 4.7 percent annual rate in the first quarter--then total output can rise substantially without much impact on unemployment. Similarly, even if employment is rising significantly, rapid labor force growth could leave the jobless rate relatively unchanged.
With different outlooks for increases in real GNP, productivity and labor force growth, the unemployment rate seen by several major forecasting services for the fourth quarter of 1984 ranges from 8.2 percent to 9.4 percent. The civilian unemployment rate in April was 10.2 percent.