The world economy is in a deep recession. OPEC is in total disarray. Congress has just passed a massive tax increase. Consumers are dispirited. Interest rates are falling. The Evil Empire is still evil but it's hard for the West to figure out who's really in charge. The year is 1982, but it could just as easily have been 1993. The more things change, the more they seem to stay the same. If anything, the state of the economy is better today. The Cold War is over. Defense spending is being cut. The Mexican debt crisis is a distant memory. Inflation is 2% instead of 10%. With NAFTA passed and GATT on the way, U.S. retailers are on the threshold of a brave new world of low tariffs and nearly unlimited product choice. Fuel For Growth

The decline in oil and gas prices will have an explosive effect on consumer spending over the next nine months. Since June 1993, oil prices have fallen from $22 to $14 a barrel. The decline in oil prices adds to consumers' discretionary income. Falling energy prices reduce the cost of doing business, increasing corporate cash flow. The other factor contributing to stronger growth in 1994 is the significant reduction in interest rates that has taken place over the past year. The reduction in interest rates has improved corporate cash flow and stimulated business investment. The long dormant market for new retail and office space is beginning to come back to life.

Lower interest rates have sparked home building and buying. Sales for new and existing homes soared in the second half of 1993. The boom in housing will have a very favorable impact on the sale of furniture, appliances and consumer electronics throughout 1994.

The U.S. economy added roughly 150,000 new jobs a month in 1993, up from just 70,000 a month in 1992. Monthly employment growth will further accelerate in 1994. The average work week in the manufacturing sector is at an all-time record high of 41.7 hours. Many employers have given overtime to existing workers rather than hire new workers due to uncertainty over health care reform.

As the picture of health care reform becomes clearer, the pace of employment growth will accelerate. More than any other single factor, job growth is tied closely to consumer confidence. The rise in job growth will provide a launching pad for consumer confidence, pushing it back to levels not seen since the late-1980s.Areas of Weakness

The Japanese economy looks a lot like the U.S. economy in 1930. The stock market has crashed, deflation is spreading from asset to consumer prices and the currency is over valued. In Europe, Germany is still dealing with the financial problems created by the leveraged buy-out of East Germany. Having completed the largest LBO in the history of the world, Germany does not have much financial capital left over to finance anything else.

With the rest of Continental Europe financially locked to Germany through the European Monetary System, Europe will not recover until Germany does. The best hope the Europeans have is that a strong recovery in the U.S. and in the U.K. will lift Germany and the rest of Europe out of recession sometime before the end of 1994.

Reduction in defense spending will be a drag on U.S. growth in 1994. A weak defense sector coupled with the problems with the Japanese economy will keep the California economy the only regional soft spot in the U.S.

The Outlook for Retailing

The pace of economic growth in the U.S. will accelerate in 1994. Real GDP growth will average better than 4% with housing, business investment and consumer spending leading the way. For retailers, the strength in the broader economy will translate into stronger sales growth. Overall sales growth will rise 6% in 1994. Inflation will accelerate modestly to 2.5%, leaving real sales growth around 3.5%.

With a strong housing market, the sale of homegoods will lead the way with a sales gain of 9%. Apparel will start the year off slowly, but gain momentum during the back-to-school season. Sales of softgoods will be up 5% overall.

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