WASHINGTON - Growth is expected to accelerate in most U.S. industries next year, while consumer and business confidence surged in the final month of this year, according to reports released yesterday by the government and private groups.
Manufacturers' shipments on average will grow by 2.8% next year, compared with an estimated 2.0% advance this year, and service industries will see faster growth in 1994, the Commerce Department predicted in its "U.S. Industrial Outlook" for 1994.
In its 35th edition, the annual report covers 200 manufacturing and service industries, accounting for 60% of total U.S. gross domestic product.
Separately, the Conference Board reported that its consumer confidence index advanced 8.3 points in December to 80.2, its highest level in more than two and a half years. Also, the U.S. Chamber of Commerce said its bimonthly business confidence index gained 7.9 points to 54.3, its highest mark in eight months.
Last year, the industrial outlook report fairly accurately predicted that most U.S. industries would grow this year, but only by enough to support a modest economic expansion.
"For next year we expect the fastest growth in manufacturing shipments since 1988," said Jeffrey Garten, Commerce Department undersecretary for international trade, at a press briefing. "One basic theme that emerges from this report is in general the outlook is quite encouraging for next year.
While no single industry is expected to be the principal engine of growth next year, business investment in capital equipment and consumer demand for durable goods are expected to be the dominant forces behind faster growth in manufacturing, the report says.
The report does not provide a quantified prediction for service industries as a whole, but it predicts that services "will expand at a slightly faster rate than in 1993."
In general, interest-sensitive sectors of the economy are expected to perform well, according to the report. "Sales of new cars and light trucks are expected to rise approximately 6% in 1994," the report says. "Housing is expected to post another moderate increase in 1994, primarily in the construction of single-family units and in remodeling."
Spending by state and local governments, "also interest-sensitive to some extent, is expected to grow much faster in 1994 after a modest gain in 1993," the report says.
Despite the report's generally favorable tone, Garten said that "serious problems" in the economy will persist next year. The report predicts that shipments in the U.S. aerospace industry will fall by 11% next year. And "most other defense-related industries are facing contractions," he said.
Garten predicted the U.S. merchandise trade deficit will widen further next year. "As we are surely going to grow faster than Japan and Western Europe, the prospects are for an increasing trade deficit in 1994," he said.
Another problem is that job growth is expected to remain relatively weak. "The economy is not generating enough jobs or the kind of jobs that anyone would want," Garten said. To correct that, the United States needs to increase its exports because jobs tied to exports tend to have higher wages, he said.
Department officials stressed that the annual report is not designed to make overall growth predictions. In preparing the report, government economists assumed that the economy would grow by 2.5% to 3% next year, with 3% inflation and relatively stable interest rates.
Also yesterday, the New York-based Conference Board provided more good news by reporting that its consumer confidence index posted the second big pin in a row. The index surged to 80.2 in December, its highest level since 81.1 in March, 1991. This followed an 11.4 advance in November.
"The consumer confidence index is now at a level historically associated with a reasonably comfortable pace of economic growth," said Fabian Linden, executive director of the group's Consumer Research Center. The index is based on a survey of five thousand households.
The index is based on two components: one measuring consumers' sentiments about the current situation and one measuring future expectations. The current conditions component gained slightly, while the gauge of future expectations surged to its highest level in almost a year.
"While it may still be too early for the readings to be totally convincing, they are certainly extremely encouraging," Linden said. "There has been a good gain in those who believe conditions will be better, and a large decrease in the number who feel they will be worse."
Coincidentally, the U.S. Chamber of Commerce yesterday said its business confidence index posted its largest advance in 22 months to 54.3 in December.
"The economy appears to have shed some of the cautiousness exhibited earlier this year and clearly stepped up a notch.," said Martin Regalia, the group's chief economist. However, he noted that "considerable uncertainty" remains regarding next year.
The nearly 8.600 respondents to the group's survey were more upbeat about the economy in general and their own firm's prospects for sales and employment.
