What's Ahead? Lower Rates, Slack Growth

Are we out of the recession or not?

Just a few months ago, economists were telling us that the recession had ended in this year's second quarter. Then came last week's report that the economy had contracted by 0.5% in the second quarter.

Now, economists are suggesting that the recovery actually began in July. Gross national product is thought to be expanding at a healthy 2.9% clip in the quarter that ends today, according to a consensus forecast compiled for the Blue Chip Economic Indicators newsletter.

Even if this prediction holds up better than the ones issued a few months ago, the outlook for many bankers remains bleak.

Although interest rates can be expected to decline in the next few months, a lackluster economy will do little to stimulate loan demand or to make bad commercial real estate loans look any better.

A clear sign of deepening concern in the White House: President Bush on Friday convened his second meeting of the week with the cabinet-level Economic Policy Council. In an unusual step, Federal Reserve Chairman Alan Greenspan was also invited to the closed-door session.

One of the nation's more optimistic economists is J.P. Morgan & Co.'s Laurence Kantor, who expects GNP to have grown at a 3.5% annual clip in the third quarter. But even Mr. Kantor said he sees growth slowing in the fourth quarter.

No Relief Until Mid-1992

Economic activity will remain too sluggish to really bring unemployment down and get consumers spending again before mid-1992, he said. And that's a change from his more upbeat midsummer forecast.

"Over the last couple of months, I became a little less bullish on the economy," he said. "When you look at the outlook for spending, you can't get too encouraged."

No question, banks are enjoying an unusually wide spread of more than two full percentage points between their funding costs and their prime lending rate.

But the facts are that residential real estate sales remain anemic and a glut of commercial real estate persists. Said Mr. Kantor, "The banking problems are not about to be resolved anytime soon."

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