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Economy May Stall in Coming Months

By Patrick Lee
Los Angeles Times

The good economic news just keeps coming: inflation remains under control, growth is solid and the nation's unemployment rate is at a four-year low.

Yet as the Republicans take control of Congress, empowered by a public frustrated over a declining standard of living and government's inability to do anything about it, there are signs that the 3-year-old economic expansion is nearing its peak.

The bad news for the revitalized GOP: At worst, the nation could go from strong growth and low inflation to a world in which consumers have less money to spend and are paying double-digit rates on fixed-payment mortgages.

At the very least, the economy's recent growth rate will likely slack in the next year, economists agree, though output and employment should continue to improve.

A slowdown would be more bad news for Bill Clinton, who has tried with little success to win credit for the recent economic growth. Instead, the administration may find itself being blamed for economic sluggishness just in time for the 1996 election.

A forecast released last Thursday by Blue Chip Economic Indicators of Sedona, Ariz., sees the nationwide economy slowing to a 2.7 percent growth rate in 1995 from a revised 3.8 percent rate in 1994 - the strongest since 1988.

Other forecasts vary, but most say that expansion of the U.S. economy will slow to between 2.5 percent and 3 percent by 1995 from the generally expected range of 3.5 percent to 4 percent in 1994. And a further slowdown is forecast for 1996.

If the Federal Reserve Board succeeds in keeping a lid on inflation, prices should rise between 3.0 percent and 3.5 percent in 1995, a bit faster than expected for 1994 but below a feared 5 percent or more if things get out of hand.

For now, there are ample signs that the economy is very strong and pressures are building for consumer prices to rise:

-Manufacturers are operating at near the 85 percent capacity rate.

-Business investment in areas such as computers and information processing equipment has been booming for the last year and is certain to cool.

-The nation's unemployment rate dipped to 5.8 percent in October from 5.9 percent the month before. Hourly wages rose at their fastest pace in 11 years.

-Interest rates continue to climb: the Federal Home Loan Mortgage Corp. reported last week that rates for 30-year fixed-rate mortgages reached 9.05 percent, their highest levels since 1991.