Who Needs a Boom?

By GEORGE J. CHURCH

"Boom" has exactly four letters, but that is not what makes it a metaphoric four-letter word. Its premature use in the past has raised so many false hopes as to give it a Herbert Hooverish ring. Saying it out loud now might well give such offense to the 8.3 million Americans still looking fruitlessly for jobs as to qualify the word as politically incorrect. So, even after the biggest one-month drop in the unemployment rate in 10 years, economists, business and government officials resolutely refuse even to whisper "boom."

Then how do those officials describe what is going on? "Moving in the right direction," says Bill Clinton. "A sustainable economic recovery," asserts Laura D'Andrea Tyson, head of the President's Council of Economic Advisers. "It looks to me like we are launched into a long, long business expansion," says Allen Sinai, chief economist at the investment firm of Lehman Brothers. In everyday language, the recovery is getting to the point where people can feel it in their wallets. And this time it might not fizzle out the way an end-of-1992 surge did. It might -- cross fingers, knock on wood -- continue at a steady pace through next year or beyond.

The unemployment report is not the only reason for thinking so. It is, in fact, so upbeat as to seem almost suspicious. The jobless rate plunged from 6.8% in October to 6.4% in November. That was the lowest in almost three years, since January 1991, and the drop was the greatest for any single month since October 1983. The November rate, in fact, was about what some forecasters had been predicting for the end of next year. There is always a chance that any startling one-month fluctuation will turn out to be a fluke, or at least subject to later correction.

The thing is, though, that almost every other statistic is also pointing up, and strongly. Personal income, consumer spending, factory orders, construction outlays, business profits, you name it; figures released last week showed them all marching ahead. Even the few contrary reports needed qualification. New- home sales dropped a bit in October from a blistering September pace, but sales of used homes hit a 14-year high. November retail-sales gains were only so-so, which might be a bad omen for the all important Christmas season. But simultaneously, consumer confidence, as measured by the Conference Board, a business-research group, jumped 11 points in November to an index number of 72.2, still relatively low but the highest since January.

Though some economists think the jobless rate may get stuck at 6.4% for a while or even creep back up, Tyson and some private forecasters see a chance for it to go down further. The reasoning: inventories by one estimate are the lowest in 20 years, but factory orders are up, 1.2% in October; presumably they will have to be filled by new production. The average workweek in manufacturing has increased to 41.7 hours, the most since World War II, which leaves little or no room to raise output by working the existing staff still harder. Some factories will have to hire again.

The upshot: 1993 seems headed for a gangbusters finish. Many revised forecasts for fourth-quarter growth cluster around 4%, up from 2.8% in the third quarter and only 1.9% in the spring. That pace would be just too fast to keep up, so output is likely to drop back in early 1994 -- but hardly as much as it did early this year. The consensus forecast is 3% in 1994, but a few brave souls are beginning to mutter 3.5%. Which would be no boom, but maybe something better: a pace that could be sustained for a long time, keeping incomes and employment growing without igniting a new surge of inflation (currently running at a 20-year low of 2.8% this year).

That would be some of the best imaginable news for the Clinton Administration. It would enable the President to argue that the spurt had been produced largely by his deficit-cutting program, which lowered interest rates (though the weakness in the economy had much to do with it also). In any case, the current surge is occurring most strongly in the industries most sensitive to the cost of borrowing: autos, housing, construction generally. An upturn there tends to boost sales of other products: the steel, rubber and glass going into cars; refrigerators, washing machines, furniture and paint needed to equip and decorate new or resold houses.

More important politically, steady noninflationary growth would help Clinton's re-election chances as almost nothing else could (not even a boom, which might fall flat by 1996). So, why doesn't the Administration do more bragging? One reason is that Clinton does not want to sound insensitive to the troubles of those still suffering from the hangover of hard times. Thus, in a speech to the centrist Democratic Leadership Council Friday, the President proudly listed almost every upbeat statistic, but also took care to remark, "We have a long way to go. We are still dealing with stagnant incomes, we are still dealing with the fact that more and more people who lose their jobs lose them permanently and have to find new and different jobs."

White House advisers feel that if the economy keeps improving, Clinton will get the credit anyway. But if he prematurely touts the return of good times, he risks the same derision he and his campaign aides poured on George Bush in 1992. Says senior adviser George Stephanopoulos: "You have to be sensitive to the fact -- and this is a lesson George Bush and the Republicans learned -- that you can't talk people into feeling good about the economy."

Private forecasters too "have been burned with this stop-and-go recovery and are understandably reluctant to stick their necks out," ways William Dunkelberg, president of the National Association of Business Economists. "They would much rather see the economy exceed their projections than shoot too high now."

There are more substantive reasons for questioning whether the surge will continue, even in subdued form. For one thing, it is regional rather than national, concentrated in the South, the Midwest and the Rocky Mountain states, especially Colorado; California is still in recession, and the Northeast no better than bumping along bottom. Of more general importance, people at the moment are spending more money than they are earning; personal income rose a strong 0.6% in October, but consumer spending jumped an even stronger 0.8%. Many analysts doubt that consumers can keep it up; savings are low, and debts remain high.

Some analysts are worried that interest rates have bottomed out and will rise again. In fact, some rates are already creeping up, though so far only to a bit above rock bottom. A much more widespread worry is that the tax increases included in Clinton's deficit-cutting program will take a bite out of the economy. Finally, worsening recessions in Western Europe and Japan could well short-circuit an increase in U.S. exports.

Quite suddenly, however, foreign developments have eased a couple of these fears. Meeting in Brussels, negotiators for the U.S. and the European Community announced a tentative agreement -- no details -- on the agricultural issues that have been blocking a new world-trade agreement. The bargainers still have plenty of work to do as they race to meet a Dec. 15 deadline. But the odds improved that they can seal a deal that would bind 116 nations to take further steps toward free trade. If so, exports all over the world, including those shipped from the U.S., should benefit.

More important, oil prices suddenly slumped as low as $15.31 per bbl., down from a March high just over $21 and the lowest in 3 1/2 years. The immediate reason was that the 12-nation Organization of Petroleum Exporting Countries, meeting in Vienna just before Thanksgiving, could not agree on a plan to cut production. Output from non-OPEC sources is rising too, and there is a possibility that United Nations sanctions against Iraq will be eased, allowing some Iraqi oil to flow abroad again. All that adds to a heavy surplus of supply over demand.

The price cuts "could be a wonderful Christmas present," says Hugh Johnson, chief economist of First Albany Corp., a New York investment firm. "They are effectively a tax cut for consumers and business, and that will more than neutralize the drag from the higher taxes and lower spending of the Clinton ((deficit-cutting)) plan." Johnson is worried that oil prices may rebound, but others think they could go lower. The prestigious Middle East Economic Survey sees a chance that they will range between $15 and a mere $10 per bbl.

The biggest factor will probably be consumer psychology. Lower interest rates always had the potential to spur the economy, but it took a shift in consumers' spending habits to make that potential real. "There's not such a drab picture of the future," says Beth Gaynor, a Milwaukee homemaker and mother of three. Though her husband held onto his job as a management- development consultant for a tool manufacturer throughout the recession, she says, for a long time they were "careful" with their money. No more: they have just finished remodeling their basement and now plan to equip it with a new refrigerator, couch and stereo. Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, comments, "You wouldn't get anyone in Milwaukee to say there's a boom because of the memory of the last recession. But there's a feeling all of a sudden that 'I've got money to & spend, I can make that purchase, I can get that couch.' It's a slow, steady growth that creeps up on you, and you look back and say, 'Wow!' "

Elsewhere, analysts talk less ebulliently of a we-survived psychology. But it amounts to the same thing: a feeling that the recession is far enough in the past that the threat to people who have hung onto their jobs is over; they can unzip their wallets. Richard Outcalt, president of Seattle-based Outcalt & Johnson Retail Strategists, puts it simply: "There's strong evidence now that the gloom and doom is dead. It just got boring." In New York City, Nancy Few-Smith, a former vice president of New York Telephone who describes herself as a part-time travel agent and "professional shopper," declares, "I'm fed up with the recession." In the past few years, she says, "I had the money but I didn't spend it. But now, if we can afford something, we buy it."

Will consumers continue to spend? Economic forecasting involves less science and more guessing than many practitioners like to admit; predicting consumer behavior is especially chancy. But it is clear that the potential exists, in the form of pent-up buying power that fear of the future kept people from unleashing. If they keep spending now, that will raise the possibility of a beneficial circle: more sales, more production, more hiring, more income, still more sales. The circle may not spin fast enough to produce a boom -- but who wants one anyway? Moderate, steady growth is better.

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CAPTION: UNEMPLOYMENT RATE

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CREDIT: [TMFONT 1 d #666666 d {Source: Blue Chip Economic Indicators}]CAPTION: REAL GAP

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CREDIT: [TMFONT 1 d #666666 d {Source: The Conference Board}]CAPTION: CONSUMER CONFIDENCE

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CREDIT: From a telephone poll of 500 adult Americans taken for TIME/CNN on Dec. 2 by Yankelovich Partners Inc. Sampling error is plus or minus 4.5%.

CAPTION: How well are things going in the country these days?

How are your family's finances doing today?

Has the recession ended in the area where you live?

With reporting by John F. Dickerson/New York, Julie Grace/Chicago and Adam Zagorin/Washington, with other bureaus