U.S. economic growth slowing

Press, 11 May 1989, Page 27

U.S. economic growth slowing

By ALLAN WHEATLEY, of Reuters (through NZPA) Washington The United States economy is slowing to a sustainable growth rate of about 3 per cent, but another month or two of poor inflation data could lie ahead, according to White House chief economic adviser, Mr Michael Boskin. He told the National Association of Manufacturers that inflation, which picked up markedly in the first quarter, was likely to stabilise and start falling later this year.

But because increases in crude oil prices had not yet been reflected fully at the petrol pump "we may see another bumpy month or two” of inflation, Mr Boskin said.

Figures on April producer prices are due to be released on Friday: (Saturday morning, New Zealand time). ' Recent evidence of home building, retail sales and employment suggested that the economy was slowing from its brisk 1988 growth rate of 3.9% to the 3% range, Mr Bos-

kin said. “Our best guess ... is that the economy is slowing to a pace consistent with solid sustained growth,” he said. A senior Federal Reserve official agreed that the sharp rise in interest rates over the past year was finally taking some steam out of the economy.

"The economy seems to have slowed,” Mr Donald Kohn, director of monetary affairs at the central bank, told the manufacturers’ group.

Mr Kohn said even if growth slowed to less than 2.5% to 3% — the maximum rate many economists believe is possible without mounting price pressures — inflation would remain fairly high for a while. “We could be in for a period of mild stagflation,” Mr Kohn said. In economics jargon, stagflation refers to a stagnation of the economy accompanied by inflation. Mr Boskin painted a broadly similar economic outlook in much more positive tones, saying there was no reason whatsoever why the expansion, now in its seventh year

and already the longest in peacetime, cannot continue for a substantial time. Mr Kohn, too, said there was no sign of a recession. Speaking to reporters after the meeting, Mr Boskin was relatively relaxed about the recent rise in the dollar. He called it modest rather than enormous.

But he said a statement issued on April 2 by the Group of Seven industrial nations, which opposed a rise in the dollar that undermined the adjustment of global trade imbalances as well as an excessive decline in the currency, was still valid. “The G-7 communique was quite clear,” Mr Boskin said.

He attributed the currency’s strength to confidence in the Bush Administration’s policies, especially its determination not to permit inflation to get out of hand.

The dollar has shrugged off central bank selling this week to reach eightmonth highs of almost 1.92 West German Deutsche marks and 135 Japanese yen.