NEW YORK, SEPT. 1 -- A leading U.S. business research organization today predicted continued economic growth but higher inflation and interest rates in the second half of 1987.
The Conference Board said it expects real growth of 3 percent in the U.S. economy in the second half of the year, underscored by rising production and continuing strength in retail sales.
But strong consumer demand is pulling in imports, "impeding adjustment in the trade balance and elevating the probability of higher interest rates," said Albert T. Sommers, economic counselor for the industry-supported research group.
"Although the new model signals stronger business during the next six months, higher interest rates are likely to subdue this trend in early 1988," Sommers said, referring to the board's economic forecast. "The case grows more and more compelling that stronger prices and higher interest rates are ahead."
Sommers said prices of "virtually all" major raw materials used in hard-goods manufacturing -- including aluminum, copper, lead and steel -- rose in August.
The board expects pretax profits for corporations and businesses to rise by 20 percent in the second half compared with the latter half of 1986, but said an increase in business taxes under the new tax law will cut that gain to 13 percent. Inflation is expected to "nudge moderately upward" between the 1987 second half and 1988, consumer prices are expected to rise at a rate of 5.5 percent by the end of the year and rising interest rates are expected to slow growth in housing, nonresidential construction and inventories