If President Clinton's fiscal plan is followed, the economy should grow by 3.2 percent this year and the deficit should shrink noticeably next year, three University of Michigan economists contend.
"Energized by consumer demand in the last half of 1992, the economy has shifted into higher gear," Saul Hymans, Joan Crary and Janet Wolfe said in an update of the national economic forecast they issued last November.If Clinton's plan is enacted and the Federal Reserve Board maintains low interest rates, the 1995 federal budget deficit could be less than $175 billion, they said. The 1992 deficit was $289 billion.
Cautioning that a sustained recovery will require more job creation and increased household income, the three lauded Clinton's "front-loading" of his deficit reduction package with a moderate fiscal stimulus.
The updated forecast was based on expectations the government will cut taxes for low-income households, raise levies on the wealthy and foreign firms, impose a broad-based energy tax and offer tax credits to stimulate investment in industrial and high technology equipment.
The revision also factored in increased federal government spending on infrastructure, education and job training programs and substantial cuts in defense and non-defense spending.
They also said the unemployment rate would fall from 7 percent in February to about 6.6 percent by the end of 1993 and edge down to 6.5 percent by the end of 1994.
Inflation was expected to remain moderate.