Economists See Good Quarter, Then Slowdown --- Effects of Crash Expected To Show in Early 1988 In Lower Growth Rate
NEW YORK -- The U.S. economy still is expanding at a moderate pace despite the stock market's Oct. 19 collapse, according to a survey of 17 economists by The Wall Street Journal.</br></br>But most predict much slower growth early next year, and a majority also anticipate lower interest rates. "I'm expecting a slowdown because of the shock to lending and spending that will come out of the crash," says Neal M. Soss, managing director and chief economist at First Boston Corp.</br></br>According to the average estimate of the 17 analysts, the economy is growing at a 3% annual rate this quarter, after adjusting for inflation. Their average forecast for next year's first quarter is that economic growth will slow to a 1.5% pace. Only two of the 17 -- Irwin L. Kellner of Manufacturers Hanover Trust Co. and H. Erich Heinemann of Moseley Securities -- foresee the start of a recession by next March.</br></br>One reason so many analysts expect continued growth is the unexpected strength of business activity prior to Oct. 19. "The economy's pre-crash strength provides reasonable assurance we won't have a recession anytime soon even though consumer spending will slow," says Lyle Gramley, a former Federal Reserve Board governor who now is chief economist of the Mortgage Bankers Association of America.</br></br>Also, federal income tax cuts scheduled to go into effect next year should help stimulate the economy, says Alan Reynolds, chief economist of Polyconomics Inc., a Morristown, N.J., consulting firm. "There is a lot of income being shuffled from this year's fourth quarter into next year's first quarter" to take advantage of lower tax rates, he says, adding, "I'm expecting a few checks myself in January, which I've deliberately deferred from this year."