Friday, November 19, 1999

Economic downturn predicted

Michigan study regarded as among best

The Detroit News

        ANN ARBOR, Mich. — Forecasters at the University of Michigan see slower growth, higher interest rates, a weaker dollar, softer home sales and a slight rise in inflation ahead.

        But they expect the jobless rate to remain low and auto sales to stay strong well into 2001.

        The university's annual economic forecast, released Thursday, predicts auto sales will hit a record 16.6 million units this year and remain high for the next two years, even as economic growth tapers off from 3.8 percent to 2.9 percent by 2001.

        The university's economic forecast is regarded as one of the nation's best.

        “The booming American economy will continue to expand, but at a somewhat slower rate over the next two years,” lead author and Michigan economist Saul Hymans said.

        But its continuing strength, recovering growth abroad and rising commodity prices will “tip the balance” toward higher inflation and interest rates, he said.

        Inflation is expected to rise from 1.6 percent to 2.4 percent in 2001, with health care prices re-emerging as a problem.

        The study predicts the Federal Reserve will raise short-term rates a half-point to 6 percent next year to stem inflation risks. The Fed has raised rates three quarter-points so far this year.

        Mr. Hymans said strong demographics make the upbeat auto sales forecasts reasonable, despite the slow growth and higher interest rates that are expected.

        But he tried to put the bullish view of the U.S. economy in perspective.

        “We're not back to the productivity growth rates of the early post-World War II years,” he said. “At that time, we witnessed a sea change in living standards that was far more significant and far-reaching than the computer technology revolution today, even though it didn't have the same flash.”


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