A SERVICEABLE ’95, BUT NO FIREWORKS
Byline: Carol Emert
WASHINGTON — Although the apparel industry continues to face its own set of particular problems — from the concentration of retail power to the new dimensions of global competition — it will at least be operating for the rest of this year in an overall economic climate that’s moderately healthy.
That’s the consensus of a number of economists, who see the worries about overheated growth diminished and possibly more stability on the horizon. In fact, “moderate” seems to be the word best describing the various facets of the economy — from interest rates to labor costs to consumer spending — all hovering at sound, but not stellar, levels.
Maurine Haver, president of the National Association of Business Economists, said she expects “a good year, though not a banner year like 1994. A well-run business with a good margin can do very well in this economy and should expect moderate growth.”
The Mexican peso crunch, combined with the Federal Reserve’s seven interest rate hikes in the last 13 months, should keep economic growth to between 2.8 percent and 3.3 percent in 1995 — well below 1994’s 4 percent, which was considered unsustainable and potentially inflationary — several economists said.
Ira Silver, chief economist with J.C. Penney Co., Plano, Tex., called the peso plunge a blessing in disguise. Although it is apparently chilling demand for U.S. exports, the crisis should squeeze the U.S. economy just enough to discourage the Fed from jacking up interest rates yet again, he said, noting that too much Fed tightening could stall the country into a recession.
Testifying before Congress last week, Fed Chairman Alan Greenspan said he believes the economy “may finally be slowing.” The Fed, he said, is prepared to ease interest rates “should we see signs that underlying forces are acting ultimately to reduce inflation pressures.”
At the same time, the recovering economies of Western Europe and Japan will be able to take up some of the slack in the export market left by Mexico, said Sandra Shaber, senior vice president with the WEFA Group, Bala Cynwyd, Pa., an economic forecasting firm. Dollar weakness against the German mark and other currencies will give exports an added boost, she said.
Bank loan rates, although higher than last year, are still not prohibitive for most businesses. The prime rate is likely to range between 9 and 10 percent during 1995. While that is higher than the last three years, healthy companies should have little problem paying back loans at that rate, according to Haver, who is president of Haver Analytics, New York, an economic consulting firm.
Supporting Haver’s prediction, the Commerce Department reported Thursday that businesses surveyed said they plan to spend an average of 7 percent more on capital needs in 1995 than they did in 1994.
While unemployment is expected to remain below last year’s level — 5.5 percent to 6 percent this year, compared with an average of 6.1 percent in 1994 — wage pressures should remain minimal, according to those interviewed.
Donald Ratajczak, director of Georgia State University’s Economic Forecasting Center, predicted unemployment will fall gradually over the year as companies feel more secure about business conditions and start filling positions they have been staffing through overtime. The work weeks of both professional and blue collar workers are at record high levels, he noted.
Nevertheless, “there is still enough skittishness in the labor markets that most industries won’t be faced by particularly high wage pressures,” said Robert Barr, deputy chief economist of the U.S. Chamber of Commerce.
Barr blamed uneasiness among white collar workers on the 1990-1991 recession, during which administrators were laid off in record numbers — and their positions were never refilled. Blue collar workers, on the other hand, are afraid to push for wage increases when more and more employers are moving their manufacturing operations offshore, several economists said.
Like economic activity in general, consumer spending is expected to grow at a slower rate in 1995 than in the last two years, when spending was fueled by cheap credit.
The economists interviewed pegged growth in consumer expenditures at 2.7 percent to 3.3 percent, compared with 3.5 percent in 1994. Shaber and Ratajczak predicted spending will taper off over the course of the year as the economy slows.
Real disposable income was forecast to increase approximately 3 percent in 1995, compared with 3.6 percent last year.
Meanwhile, the economists agreed that price inflation would be higher this year than last year’s rock bottom 2.7 percent. On average, they predicted a moderate hike of 3.2 percent in the Consumer Price Index, which measures retail prices.
— Fairchild News Service