Economists Hold Mixed Views on the Shape of a Recovery

NEW YORK - A recovery is in sight for the U.S. economy in the second half of 1991, but economists continue to debate whether it will come on strong or just limp in.

Expectations differ on the timing and magnitude of a rebound in consumer spending, inventory rebuilding, and the likely foreign demand for exported goods.

"Most people think there is some kind of recovery in the process. It's a matter of whether it is long and mild or steeper than expected," said Robert Brusca, chief economist at Nikko Securities Co. International Inc.

Forecasting a Weak Recovery

Mr. Brusca foresees a weak recovery, if any, in the final six months of 1991. "I'm not of a mind to talk recovery right now. We see erratic or slow growth in the second half."

He sees gross national product contracting by 0.9% in the third quarter, followed by a mere 0.1% growth in the fourth quarter.

"There won't even be enough growth to call it double-dipping," he added, referring economists who forecast a mild recovery followed by another downturn into recession.

GNP fell by 2.8% in the first quarter as the recession continued, but most economists expect a modest rebound in the second quarter, to a rise of around 1% in GNP.

Morgan Stanley and Co.'s senior economist, Stephen Roach, is among those predicting strong growth. He sees GNP growth picking up to 3.8% by the third quarter and 4.7% in the final quarter.

Recovery "will be driven by consumer demand and production as manufacturers rebuild inventories," Mr. Roach said.

In line with the growth, Mr. Roach sees inflation based on the consumer price index picking up later in the year.

"The CPI may be a little strong by the fourth quarter," Mr. Roach said. However, he added, the Federal Reserve will probably keep its credit policy unchanged.

A Middling Upturn Foreseen

Robert Hormats, a vice chairman at Goldman Sachs International, occupies a middle ground, seeing a modest recovery in the second half of 1991, with low inflation.

"U.S. economic growth will pick up somewhat toward the end of summer," Mr. Hormats said. "Things will be more positive in the second half, but it won't be real strong recovery. I'm relatively relaxed over inflation."

"Consumer spending and a slight rise in corporate profits will drive the economy," he said. "As well, government demand will be relatively strong, and net exports up a bit."

Mr. Hormats forecast that the consumer price inflation rate will be down to 4% by the fourth quarter, compared with a 5.1% annual rate in May, while the producer price index will be even lower.

"Inflation will drop, so real incomes will be going up - you won't lose so much of your pay from inflationary price rises," Mr. Hormats said. He also predicted a slight recovery in business fixed investment from the currently depressed levels.

Those forecasting a modest recovery expect credit policy to remain on hold, with interest rates staying at current levels, and with a chance of decline as inflation eases. The economists generally saw long-term rates running between 8.5% and 8.75% for the rest of the year.

One sector not expected to show much improvement in 1991 is labor. Unemployment is not expected to change from its current 6.8% rate.

"Nonfarm payrolls should start to gain, but not enough to to reduce the unemployment rate," said Elias Bikhazi, an economist at Security Pacific Corp.

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