Economists predict slight slowdown for next year

In the annual two-year forecast produced by the University, economists predicted a slowdown of the economy over the next two years.

"A year ago, most analysts were saying, 'It doesn't get any better than this,' but it did," economics Prof. Saul Hymans said in a written document summarizing the study, which was released last week.

Overall, the study concluded the economy will continue to expand, but at a slower rate.

It assessed inputs, or economic factors, that strengthened the economy in recent years and compared them to recent economic data to forecast the slowdown.

According to the study, the recent growth percentages in consumer spending, residential building and business investment are slowing down.

Also, due to the weakening Asian markets, exports and consumer sentiment are down.

Consumer sentiment, which is a measure of purchasing confidence, is dropping from record-high levels in part because of recent job cuts, slowing job gains and stock market instability.

The University's Institute for Social Research measures consumer sentiment and factors it in to the federal government's Consumer Price Index, which is the standard measure of inflation.

"We expect consumer spending to continue to increase, but at a slower level," said Senior Research Associate Janet Wolfe, one of the study's researchers.

The study predicts inflation will increase from the current 0.8 percent to 1.5 percent in 1999 and 1.9 percent in 2000.

It also forecasts an increase in unemployment from its current rate of 4.5 percent to 4.9 percent in 1999 and 5.4 percent in 2000.

While this increase does not parallel the high unemployment of the 1980s, it could mean students would have to do a little extra job searching.

But Wolfe said: "With the growth we've had in the past few years, the job market for graduates has been very strong."

She added that the higher unemployment levels would return the job market to more normal levels.

LSA senior Charles Sutton said a University degree does not automatically ensure a job offer.

"There are no guarantees. Even though I would be graduating with a U of M degree, I know people who have graduated from here with a degree and aren't working," Sutton said.

One important factor in the findings is the Federal Reserve Board's recent interest rate cuts.

After holding rates steady for 18 months, the Fed then lowered rates by a 25 basis point drop in late September and lowered it again by a 25 basis point drop in mid-October.

The Fed made these changes to encourage more normal lending practices, Wolfe said.

Therefore, qualified loan applicants would not be turned down, Wolfe said.

"It is this pattern of developments which we believe justifies the expectation that the Federal Reserve Board will continue on an expansionary track - at least through the early months of the coming year," Hymans said in the report.

Wolfe said the policy expansion would cause interest rates to decrease.

This likely would not affect student loans because they are already at a reduced interest rate, Wolfe said.

But for young adults exploring the housing market, the lower rate would lower mortgage rates, making houses more affordable.

If the forecast is accurate, foreign products could become more expensive.

The report forecasts relatively higher prices on imports due to the expected decrease in value of the U.S. dollar.

11-25-98