Forecast: Even Better in '73

TIME's Board of Economists

ONE year ago, TIME'S Board of Economists went out on a long limb and predicted that the then feeble recovery would gain enough strength in 1972 to produce the first $100 billion gain in gross national product ever recorded by any country. That bullish forecast has turned out to be slightly too conservative: the advance for this year will turn out to be some $101 billion. The board now predicts that 1973 will be even better, with a G.N.P. rise of around $110 billion, to the elevated area of $ 1,262 billion.

The range of forecasts, ventured at a meeting last week, is surprisingly narrow. Beryl Sprinkel, senior vice president of Chicago's Harris Trust & Savings Bank, foresees the lowest increase: $107 billion. IBM Vice President David Grove is the high man, envisioning a $112 billion advance. Predictions by three economists who run their figures through computers--Democrat Otto Eckstein, Republican Alan Greenspan and Nonpartisan Grove--come out almost identical. They are backed by board members who use, at this early stage in the forecasting season, a "back-of-the-envelope" approach. In percentage terms, the consensus prediction works out to about a 9.5% G.N.P. rise, of which 5.8% to 6.2% will consist of real growth of production rather than merely price boosts. This should lead to more money--in pay, profits, sales, commissions--for nearly everyone. Grove projects a 13% gain in pretax profits next year; Eckstein says 16% after taxes.

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The economy has built up much momentum in the past year, and board members see little to slow it. Eckstein predicts a drop in housing starts to 2.1 million next year, from 2.3 million in 1972, and a trade deficit lasting throughout 1973. One reason: exporters in foreign countries have built up such extensive facilities to serve the U.S. market that they will hold their prices down despite dollar devaluation and suffer a profit squeeze rather than let those facilities lie idle. But Eckstein expects other sectors of the economy to take up the slack. Auto sales, including imports, should rise from 10.8 million this year to 11.2 million in 1973. Capital spending should be up about 13%.

The outcome of the election, say the economists, really makes no difference for the first half of 1973, though it may later on. All members of the board, including the Democrats, expect Nixon to win. Some believe that in the unlikely event the President really succeeds in holding federal spending for fiscal 1973 to $250 billion, economic growth might slow by the fourth quarter. Greenspan adds that in the still more unexpected event of a McGovern victory, the confidence of managers and stock market investors could be shaken enough to produce a slowdown in the fourth quarter and beyond. Even then, the shape of the year would not be affected much: businessmen have already made too many purchasing and expansion commitments.

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The flaw in the rosy picture is that Americans for another year will have to live with levels of inflation and joblessness that they would have thought unbearable only a short time ago. Most of the economists think that price rises will equal or exceed this year's likely 3.4%. Eckstein predicts a 3.9% increase in the consumer price index--which is moderate compared to Europe's inflation, but excessive by past U.S. standards. Unemployment, the economists believe, will average around 5%, v. the 4% that is usually considered "full employment." The reason is by now familiar: super-rapid growth in the numbers of people, especially youths and women, looking for jobs. (The current unemployment rate is 5.6%.)

The U.S. economy is now so big that it must move ever faster in order to stand still. Walter Heller, a member of TIME'S board, calculates that the increase in the labor force, the normal rise in productivity and a modest increase in inflation would add up to a potential growth of 7.5%, or $90 billion. But growth has to be higher than 7.5% for several more years if the nation is to employ its out-of-work men and women and get good use from its underutilized plants and machines. As a consequence of the recession of 1970 and the slow advance of 1971, the economy is still not humming at its full potential. Thus there is both need and opportunity to follow the strong rise of 1972 with an even stronger 1973.

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