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What’s Required To Emphatically Improve the Economy With AM-Economy Bjt

May 4, 1993

Undated (AP) _ What kind of therapy will it take to create hundreds of thousands of new jobs month after month and help raise the average American’s confidence about the country’s economic future?

The latest statistical evidence paints a troubling picture that suggests the economy is stumbling badly after a remarkably strong period of growth late last year.

On Tuesday, the government said its chief economic forecasting gauge plunged in March, the worst decline since the last recession more than two years ago. On Monday, a prominent industrial trade group said American manufacturing slumped in April for the first time in seven months.

Private forecasters aren’t yet predicting a return to recession but some are lowering their forecasts for this year. Many blame the slowdown on problems that range from stubbornly high debt levels and recessions overseas to new uncertainties about the Clinton administration’s economic priorities.

″It’s like driving on ice,″ said Audrey Freedman, a labor economist who runs a New York-based consulting firm. ″You just don’t get that much traction.″

Questions and answers on what is weakening the economy and what economists say must happen for stronger growth:

Q: Why did the economy grow so quickly late last year, only to lose the stamina early this year?

A: Growth surged partly on a burst of spending and borrowing by consumers, particularly after President Clinton’s victory in November. Predictions that he would work quickly to reverse disillusionment with Republican handling of the economy created widespread optimism, even among some skeptics. Since more spending creates more demand for goods and services, the economy benefited.

But the optimism couldn’t last without something else. Businesses were still laying off workers to cut costs. Income was barely matching inflation. Markets for American exports, particularly Europe and Japan, were weakening.

″In hindsight, people spent a little more than they should have on the feeling that things would be better in 1993,″ said Larry Valencia, portfolio manager for Pena Investment Advisors, a Denver-based money management firm. ″People then realized there wasn’t any real change.″

Q: What’s holding the economy back now?

A: Many consumers have returned to the frugal spending behavior that characterized much of 1992 and 1991. ″Consumers are more interested in bargains, more interested in getting value out of the dollar,″ said Murray Shor, editor and publisher of Shopping Center Digest, a trade journal in Spring Valley, N.Y.

In addition, many businesses have delayed expansion plans, partly because of uncertainty about higher taxes and more intense regulation under the Clinton administration in areas ranging from environmental cleanup to health insurance.

Some businesses have warned of more layoffs ahead because of unsatisfactory corporate profits. Others are becoming increasingly restive about their fear of government meddling.

Q: Why haven’t lower interest rates helped yet?

Lower interest rates have helped to some degree. Interest - the cost of borrowed money - has become increasingly affordable over the past few years. Some economists say this has kept the economy from actually worsening by enabling debt-burdened businesses and consumers to refinance existing loans at cheaper rates. But few are using the opportunity to borrow large sums for new loans - another sign of tenuous confidence about the future.

Q: Would President Clinton’s job stimulation measures, defeated by Congress last month, have helped?

A: That depends on whom you ask. Proponents of the $16 billion program said it would have sent a positive signal about Clinton’s determination to provide more jobs, even if they were temporary or low-skilled. Critics said it was needless spending that the government can’t afford and would have no visible impact in a $6 trillion economy.

Q: What would help?

Many economists now say a pickup in the weak economies of American’s foreign trading partners is one prerequisite. That would stimulate demand for U.S.-built machinery and raw materials ranging from corn to cowhide.

Others say a sustained pickup won’t happen until government, businesses and individual consumers work off more of the enormous levels of debt piled up during the Reagan-Bush era. Clinton himself made this point Tuesday, urging lawmakers to pass a deficit reduction plan.

Q: With all the signs of weakness, why is the stock market still doing so well?

The stock market historically has been a good forecaster of the future, as investors place bets on companies that could prosper if the economy expands. But a growing number of stock market strategists believe prices are too high. They attribute this to enormous amounts of money that investors have put into the market simply because they don’t want their savings to languish in a bank or government bond, where it earns low interest.

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