$100 Billion in Growth: A Startling Forecast

THE U.S. economy appears to be on the verge of a startling advance.

Though predictions are especially tentative because many key parts of President Nixon's program have yet to become fact, economists of varying philosophies have brought forward estimates that are remarkably consistent. After having accurately predicted the slow recovery and high unemployment of 1971 (TIME, Oct. 12, 1970), a majority of TIME's nine-man Board of Economists predicts that in 1972 the gross national product will increase by a spectacular $100 billion.

The estimate is the bottom-line figure in the "preliminary 1972 appraisal" of Walter Heller, one of the nation's leading economists and an adviser to Democrats Edmund Muskie, Hubert Humphrey and Edward Kennedy. He notes that it would be the largest G.N.P. dollar advance in U.S. history. Adds Republican Alan Greenspan: "I come up with $99.8 billion." Beryl Sprinkel, an advocate of conservative monetary policies who often disagrees with Heller, calculates an advance "on the order of $100 billion."

Harvard's Otto Eckstein and IBM Vice President David Grove both use complex computer programs in making their estimates--and arrive at strikingly close predictions. Eckstein forecasts an increase "between $99 billion and $100 billion," while Grove estimates an advance of $102 billion.

Spending Up. Quite a few uncertain events must in fact occur to make an advance of $100 billion a reality. At the very least, these include: 1) congressional enactment of a stimulative tax program similar to, or even more generous than the one proposed by President Nixon; 2) reasonable success in curbing wage and price increases in Phase II; and 3) little retaliation from abroad as a result of the Administration's import surcharge.

Granting these conditions, what is the major factor likely to cause a steep economic rise? Most economists expect that it will be an upsurge in consumer spending, which has been sluggish for two years. Eckstein foresees a $60 billion jump in consumer spending, an increase averaging more than $1,000 per U.S. family. The spending increase will be brought about in part by the President's proposed tax stimulants, which were liberalized by the House Ways and Means Committee last week (see page 27). Next year, a family of four earning $10,000 a year is scheduled to get at least $114 in tax relief. Another spur to spending should be a rise in the public's "confidence factor" as a result of the general realization that inflation is slowing and the economy is gaining after a long period of slack.

Americans are sure to spend more and save less next year, but the big question is how much. U.S. families are now saving a very high 8.2% of their disposable income, compared with the normal 6%. If the current rate were to drop by just one point, that would send another $8 billion into the spending stream, creating much fresh demand and many new jobs. Several members of TIME's Board believe that the savings rate will decline by one-half point or one point. Greenspan worries that it may drop much further, to 6%. Says he: "Don't underestimate the risks that the consumer may come back in a really big way. Under the conditions we are talking about, he could spend so much as to set off a fairly virulent demand-pull inflation."

Inflation Down. Many other factors should contribute to the G.N.P. surge. Eckstein predicts that businessmen wil increase their inventories by $9.5 billion v. $3.5 billion this year. Taking advantage of the investment tax credit, businessmen should also lift their capital spending by $7 billion. And because of a backlog in demand, a rise in the housing industry should add a further $6 billion to G.N.P. growth. Besides all this, state and local government spending should go up at normal rates of about $13 billion.

Overall, a $100 billion increase would lift the G.N.P. next year to about $1,150 billion from this year's probable total of $1,050 billion--which is well off the Administration's original expectation of $1,065 billion. Put another way, the current year's rise over 1970 will be a disappointing $76 billion. More than half of that gain is illusory, merely reflecting the rate of inflation. Not counting price rises, the "real" growth of the economy in 1971 will probably amount to only about 3%.

What makes the economists' forecast for 1972 so encouraging is the amount of real, noninflationary growth. Heller expects that the rate of real growth will jump to 6 1/4%; meanwhile, the inflation rate will shrink from this year's 4.7% to 3%. If those results are achieved, the U.S. economy will expand faster next year than at any time since the mid-'60s. One bread-and-butter result, predict Heller, Grove and Eckstein, will be a reduction in the unemployment rate from the current 6.19% to 5% by the end of 1972.

That is still far too high for the U.S. Even if the G.N.P. does advance by $100 billion, the economy will still be far short of first-rate working order. The President's Council of Economic Advisers and TIME's Board of Economists agree that the nation needs more than one exhilarating year to close this gap left by the recession and reach the economic level that would have been achieved if growth had been normal over the past three years. Heller reckons that it would take a G.N.P. increase of $80 billion just to hold unemployment at current rates, and three straight years of more than $100 billion growth to bring joblessness down to the 4% level. Still, compared with most prognostications of late, the prospect of a $100 billion jump in 1971 sounds very welcome indeed.

This file is automatically generated by a robot program, so reader's discretion is required.