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LOW INFLATION, LOW INTEREST RATES, FAST JOB GROWTH WILL BRIGHTEN 1994

SHARE LOW INFLATION, LOW INTEREST RATES, FAST JOB GROWTH WILL BRIGHTEN 1994

The U.S. economy will grow faster in 1994 than it did in 1993. The broadest measure of this stronger performance will be a 3.7 percent increase in real Gross Domestic Product, almost 1 percent faster than last year.

I expect 2.6 million more people on the payrolls in 1994 than in 1993, leading to an unemployment rate of 6 percent by the end of 1994.Low inflation will be helped by lower energy costs in particular. Imported crude oil will average $15.21 per barrel in 1994, about $1.50 less than during 1993 and more than $3 less than in 1992.

Long-term interest rates are expected to continue to reflect low inflation, remaining as low as they have been for 25 years. Interest rates also will be lowered because of the painful efforts to reduce the deficit, which will drop to $170 billion, or 2.5 percent of GDP in 1994.

Investment will be particularly strong. Good prospects for sustained higher output, low inflation, low interest rates, rising corporate profits and high stock prices, all make for strong investment.

Low mortgage rates and rising home prices in many cities brighten the outlook for housing starts, which will add 1.5 million units, the highest level since 1987.

Consumers will have low inflation and higher wages, leading to real income growth that will offset higher tax rates for the highest income earners. Real income will rise 4 percent in 1994, the best performance since 1984.

Real consumer spending will increase 3.5 percent, less than the income increase, as consumers add to their saving rate, as well as boost the economy.

A large backlog of needs also drives consumption, including the need for new furniture to furnish new houses and the need to replace an aging auto/truck fleet.

The biggest weakness? Although I predict that growth in real exports will be almost twice as fast as the growth in 1993, imports will surge even faster than exports. Real imports will rise 7.3 percent and real exports 4.8 percent in 1994.

Another weak sector? Defense spending will drop 4.5 percent in 1994.

California will add to the nation's job growth because it will shed fewer jobs than in 1993. That is, it will be less of a drag on the U.S. economy next year than it has been for the past three years. By the second half of 1994, I think California could be starting a weak recovery.

Biggest risk: Many of our key trading partners are in trouble. European unemployment is extraordinarily high and social tensions reflect this. Efforts to create the "united states of Europe" have been set back by challenges to support eastern European conversion to capitalism.

Japan is adjusting to deflated asset values and severe tests of lifelong employment practices, due to low demand for its products. Russia and the Middle East are in hopeful but clearly dangerous transitions.

China? Is it on a roll or a roller-coaster? Mexico will be making painful adjustments to more open competition with U.S. corn producers, just as U.S. workers face keener international competition from south of the border.

In summary, the outlook for the U.S. economy looks better in 1994, led by low inflation, low interest rates, faster job growth and strong investment.