Page 8-B
End Os The Year Review Os America’s Economy; Future Forecast
By Kichard B. Roberts
Senior Vice President
Wachovia Band and
Trust Company, N. A.
The biggest economic
news of 1981 was the
philosophical change in
direction characterized as
Reaganomics. The basic
premise of the new economic
program is that lower taxes
and greater savings in
centives will, over time,
bring about gains in in
vestment and productivity,
reduce the rate of price
inflation, move interest rates
downward, and increase the
pace of real economic
growth.
Since the first phase of the
Reagan Administration’s
program only became ef
fective on October 1, it
cannot be blamed or
credited to any significant
extent with the bad or good
economic developments of
the year. Except for the
psychological impact of tax
and budget cuts scheduled
for the future, the business
scene over the past twelve
months has been largely
dominated by the
momentum of entrenched
forces and programs
originating over many
years past.
During 1981, fiscal and
monetary policies continued
to work at cross purposes
with each other. The budget
deficit remained large and
stimulative. Persistent
price inflation, weak money
supply growth, of strong
financing needs by both
government and business
drove interest rates to
record heights. Depressed
conditions existed
throughout the year in the
housing and automobile
industries, but recent data
suggests that a much
broader contraction is now
under way.
The tug of war between
fiscal and monetary policies
has caused the economy to
follow an erratic up-and
down course since the fall of
1979. This is evident in the
profile of real gross national
product changes for 1981:
first quarter up 8.6 per cent;
second quarter down 1.6 per
cent ; and third quarter up
0.6 per cent.
The recent fall in in
dustrial production, rise in
unemployment, and
behavior of numerous other
indicators suggests a
decisive drop in business
activity during the final
NOTICE
Primary Election Os 1982
Pursuant to G.S. 163-104, a Primary
Election will be held May 4, 1982, and the
second primary, if necessary, will be
held June 1, 1982, with the County of
Chowan, North Carolina.
Filing period for candidates will begin
at 12:00 noon on January 4, 1982, and
close at 12:00 noon on February 1,1982, at
the Board of Elections Office, Chowan
County Courthouse, King Street,
Edenton, North Carolina.
Chairman Board of Elections
k alvin l-L/JjrS
5 HOLLOWELL ' 1 f 1
M OWNER (Licensed Electrician)
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§ CONTRACTOR
period. Interestingly, the
softness in holiday season
retail sales seems to be as
much due to cautious
stocking of shelves and lack
of merchandise selection in
some stores and lines as to
consumer spending
retrenchment.
Prospects do not appear
good for a quick, vigorous or
clear rebound. The
statistical path of economic
activity is not likely to be a
smooth trend or straight line
in any direction. There
could continue to an erratic
and inconsistant pattern of
quarterly starts and stops
which defies rational
prediction or explanation.
For this reason, the first
quarter of 1982 could sur
prise the forecasters with
another aberration and
bring unexpected growth in
real GNP. The overall tenor
of the economy seems to be
represented in statistics and
media reports as a bit more
gloomy than the impression
one gets from talking to
many individual businesses
and consumers, especially
in this part of the country.
The most prominent
concern in the outlook is the
burgeoning size of the
federal deficit, which some
project to exceed SIOO
- This is the result of
large tax reductions without
comparable decreases in
spending, despite a good
effort to contain the rate of
increase. When government
expenditures exceed
revenues, the amount of
funds available for
productive capital for
mation is reduced.
If the Administration’s
economic program is to
have the desired effect, the
government must bring
down the share of savings
and investment funds that it
preempts and denies to the
private sector. A large
measure of statemanship
ana discipline will be needed
from Congress during the
1982 election year to prevent
further enlargement of the
deficit.
A number of major labor
contracts are due for
renegotiation next spring,
and the outcome of these
settlements will have a
great influence on the cost
push element of price in
creases for several years.
During the last twelve
months, inflation has
slowed encouragingly from
peak levels, and a
moderation of wage and
benefit demands should be
expected.
A continuation of the
better trend in consumer
prices, couples with
reasonable labor demands,
and a declining federal
deficit would make it
possible for monetary policy
to operate more effectively
without producing such
volatile money markets. A
more stable interest rate
structure at much lower
levels is definitely required
for a healthy economy. This
is not likely to occur until
the budget deficit is brought
under control. Meantime,
rates are likely to be erratic,
but in 1982 should average
below 1981 levels.
Cyclical and historical
turning points in economic
and interest rate trends are
always hard to forecast. The
difficulty is compounded
now by the lack of ex
perience with the new
Administration’s innovative
and untested economic
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THE CHOWAN HERALD
philosophy and policy. But,
looking a recent cyclical
developments and un
derlying fundamentals, a
good case can be made for
modest recovery beginning
sometime in the first half of
1982 and, somewhat guard
edly, for even more en
couragement in future
years.
Lower average money
costs provide hope for some
improvement in interest
sensitive sectors such as
housing and autos which
have a broad impact on the
economy and where pent-up
demand is accumulating.
Housing starts fell short of
basic need in the first two
years of this decade. Also,
automobile scrappage has
begun to exceed production.
Fuel prices remain
relatively high, but have
softened. Capital in*
vestment programs should
begin to expand in 1982 as
the demand for goods and
services strengthens.
The American consumer
has consistently disap
pointed pessimistic
forecasters by displaying
amazing resiliency in
coping with painful inflat
ion, high interest rates, and
erratic economy and
psychological uncertainty.
Sustained abatement in
price inflation, additional
reductions of income taxes,
and further stimulation by
budget deficits should boost
consumer spending as 1982
progresses. However,
steady monetary restraint
and nagging inflationary
anxieties could cau£e in
terest rates to move up
again as economic activity
and private sector
borrowing increase. This
would tend to moderate the
recovery.
For the longer run, there
has clearly been a fun
damental and favorable
shift of historical
significance in national
policies and priorities.
Turbulence, uncertainty,
and a sluggish economy will
likely accompany this basic
change in course as the
various stages proceed. One
of the most critical con
tingencies in the outlook is
whether enough of the tax
cuts will be saved to help
finance a major part of the
budget deficits they create.
If so, the prospects will be
greatly enhanced for a
gradually better outlook
over the years ahead.
The North Carolina
economy holds good
promise for continuing its
above average per
formance. The state’s in
dustrial development and
diversification efforts have
during the last six years
resulted in commitments for
over $lO-billion of added
capital investment
estimated to create 170,000
new jobs. Some of these
projects are stiU in the
various stages of con
struction, staffing, and
becoming fully operational.
A modest but steady pattern
of additional in
vestments, new jobs and
further diversification is
expected to continue.
Nevertheless, the North
Carolina economy will, as in
the past, mirror national
trends to a substantial
degree. However, the more
diversified employment
profile and cautious in
ventory positions of major
consumer goods industries
should enable the state to
fare better than the national
averages in most
meaningful measures of
economic well being. A
favorable comparison has
thus far been clearly evident
in an unemployment rate
which has been consistently
tracking well below the
nation.
The upward trend of
jobless figures for the state
which began during the fall
seems certain to continue
through December,
reflecting careful inventory
control, shortened
production schedules, and
prolonged holiday closings.
Thursday. Decemher ai.A
The lagging unemployment
statistics announced in the
current month and next
month will probably look
progessively worse. This
could prove temporary and
be gradually reversed in the
first quarter as 1962 comes
into clearer focus, spring
and summer orders Arm u&,
and inventory building gas
more earnestly under wayr-
As has been true for many
of the past several years, tile
performance of the state’s
and nation’s economy for
1982 is likely to be closer to
the optimistic side of the
consensus forecast than to
the pessimistic extreme.
This is especially true sos
election years when the biafc
of fiscal policy tends toward
stimulation. With enough
perservance and vision on
the part of the American
people and their political
leaders, the next year could
bring the first stage of a slow
but sustainable turn -
around in the country’s
economic fortunes.