The new year is only a few weeks away, but it still is out of focus in terms of the economy. Economic forecasters are sharply divided even over what the first three months of 1986 will bring, with the predictions ranging from near boom to mild bust.
At a recent business outlook conference sponsored by the Economic Club of Connecticut, Roger E. Brinner, chief economist of Data Resources Inc., predicted that the economy will decline slightly in the first quarter of 1986 (dropping at what would amount to a 0.3 percent annual rate) and that economic performance for the entire year will be weak.
"I can't find a leader for spending in 1986," Brinner declared. With business investment in physical facilities and equipment falling and consumer spending rising only modestly next year, the gross national product, adjusted for inflation, will rise only 1.8 percent above this year's level, he said.
In contrast, Joel Popkin, a respected analyst who heads his own economic consulting firm here, is looking not for a drop early next year but a surge. Popkin told his clients last week that real GNP will increase at a 6.2 percent rate in the first quarter and be up 4.1 percent for the year as a whole.
"Now that inventory liquidation and trade-balance deterioration have run their course, economic growth is likely to be strong for several quarters," Popkin said. "In fact, if, despite the strong -- even excessive -- monetary and fiscal-policy stimulus that has been provided for most of 1985, the economy does not continue its acceleration begun last quarter, it's back to the drawing boards for macroeconomic theory."
Macroeconomic theory deals with the major factors that determine national income such as consumer, business and government spending, budget and tax policies and monetary policy, and how they interact.
Interestingly, while Brinner and Popkin are far apart in their predictions on real growth, they are much closer on inflation. Popkin expects consumer prices to go up at about a 4 percent rate for most of next year, while Brinner forecasts rates generally about 3 1/2 percent.
It is rare for there to be such a wide divergence in predictions about economic growth in the next three months. For the very short run, forecasters usually rely heavily on the most recent statistics on economic activity for their projections.
For example, Alan Greenspan of Townsend-Greenspan Co., looking at such data for November, said they "point to a continuation of the unusually prolonged pattern of subnormal growth which has prevailed since the beginning of this year."
Greenspan's forecast, like that of most analysts these days, falls between those of Brinner and Popkin. Greenspan expects a "modest reacceleration early next year." But he adds, "As has been the case throughout this year, however, concrete confirmation of that reacceleration has yet to emerge."
Another economist, Lawrence Chimerine, head of Chase Econometrics, followed Brinner to the podium at the outlook conference and was closer to him in the spectrum of forecasts. Chimerine's forecast is not quite as gloomy as DRI's, but it's not that much better. "Early signs for 1986 are consistent with continued slow growth -- these signs include recent capital spending and inventory surveys, and declining household and business confidence," Chimerine said.
And then Michael Evans of Evans Economics, another Washington consulting firm, took on Brinner and Chimerine. "We're going to have a great year next year," Evans declared, deriding the other two forecasts. "Real growth will be about 5 percent" as a result of continued strong consumer spending, a falling trade deficit and capital spending by "smokestack" industries, he said.