Continental Doesn't Expect |Double Dip'
CHICAGO - Continental Bank Corp.'s chief economist is sticking to his view that a second economic downturn - the double-dip recession - is unlikely.
"There is little doubt that the spark required to generate additional strength in economic activity remains elusive," Richard S. Peterson said in Continental Comment, the bank's newsletter.
He concluded that economic growth in the next year will be slower than in previous recoveries, but that the possibility of a double-dip recession remains "relatively remote."
Signs of Growth
He cited indications that growth remains stronger than a year ago:
* During the second half of 1990, nonfarm employment and real after-tax incomes declined sharply, but in the past few months both have grown.
* Housing starts last year were dropping, but in the past six months they have risen close to 15%.
* New orders for durable goods, which fluctuated during the third quarter, are sharply higher than earlier in the year, so further cuts in business inventories are not likely to be necessary.
Consumers Still Spending
"Much has been made of the sharp fall in consumer confidence," Mr. Peterson said, "but this doesn't square with the fact that spending has outpaced income this year. More important are low levels of business confidence as reflected in employment cutbacks, the lack of inventory building, and reluctance to increase capital spending."
Mr. Peterson sees business confidence beginning to improve with growth in exports and business investments.
"Inflation fears currently are relatively mild," the newsletter added. As a result, the Fed should be willing to reduce interest rates.