A Forecast of Glad Tidings

TIME'S Board of Economists rejects recession fears and sees growth in 1985

For the U.S. economy, the best Christmas gift would be the promise of further solid growth next year. And that is precisely what TIME'S Board of Economists offered last week when it met to assess the business outlook for 1985. In a spirited session that also examined the impact of sweeping tax reform and budget-cut plans, board members unanimously predicted that the economy will retain its forward momentum and avoid a recession in the year ahead. Said Alan Greenspan, a New York consultant who chaired the Council of Economic Advisers under President Ford: "There is no credible evidence that we are on the edge of a significant cracking of the system."

The board's optimistic forecast, made in the face of a slowdown that chopped third-quarter growth to an annual rate of just 1.9%, noted the absence of such traditional preslump signals as climbing inflation and badly shaken consumer confidence. On the contrary, prices continue to hold steady and shoppers have been in a fairly good mood. The Commerce Department reported last week that November retail sales were up 1.8%. That early Christmas-season gain, the healthiest monthly increase since April, helped allay retailers' fears that holiday buying would be weak. Other key indicators showed that November industrial production grew .4%, the first gain in three months, while stocks of unsold goods remain lean.

TIME'S economists predicted that the gross national product will expand 2% this quarter, down from the 4% they foresaw last September, and then grow a healthy 3% to 4% in 1985. That increase would be typical for the third year of an economic recovery. Board members predicted that the pickup will trim unemployment from the 7.2% rate it unexpectedly fell to in November to 7% by mid-1985. They look for joblessness to remain stuck at that relatively high level through 1986.

The board blamed the large, unforeseen drop in third-quarter growth on a runaway trade deficit that swelled during the period at a record annual rate of $150 billion. That gap, which measures how much more Americans have been importing than exporting, drained substantial purchasing power out of the U.S. economy and funneled it to manufacturers in Japan and other foreign countries. Without the damage wrought by the shortfall, the G.N.P. would have increased a robust 5.7% during the third quarter.

The trade gap greatly worsened what would otherwise have been a normal slowing after a period of rapid expansion. Such pauses for breath frequently aroused fears of a slump during the economic recoveries that occurred in the 1960s and '70s. Recalled Walter Heller, a University of Minnesota economist and the chief economic adviser to Presidents John Kennedy and Lyndon Johnson: "I remember Kennedy being terribly worried in 1962 that there would be a recession, and on the basis of very much the same kind of thing we are looking at here. We assured him that that would not be the case, and, thank goodness, we were right."