Slow growing on the road to recovery.

• Position: Economic forecasting by Gary Shoesmith - Interview

Gary Shoesmith, director of the Center for Economic and Banking Studies and associate professor at the Babcock Graduate School of Management at Wake Forest University, offers his latest forecast, including his first projections for 1994 and some thoughts about the likely impact of the Clinton presidency.

BNC: Is everything coming up roses for the economy now?

Shoesmith: Economic reports for the third quarter of 1992 are much more positive than we've seen for a while. Real growth for the quarter of over 3% is a very positive sign, especially when combined with the reports for personal income, productivity, factory orders, retail sales and so on. But one disappointing report was that unemployment was essentially flat at 7.3% for December. So even though the economy and employment are growing, the labor force is growing at roughly the same rate.

BNC: Are people coming back into the labor force who had stopped looking for work?

Shoesmith: Yes. That's typical in the early phases of recovery as prospects begin looking brighter. In this case, we're six quarters into the recovery, and prospects are only now beginning to look truly brighter on the employment front. Two quarters' worth of increasing retail sales, factory orders, personal income and productivity all suggest more rapid growth in employment in the future.

BNC: What is driving the recovery?

Shoesmith: What we've seen in the third and fourth quarters of last year is a return by consumers toward spending more based on the use of credit. But at the same time I expect and hope that consumers will retrench during 1993 and work off a good deal more of their debt before returning for a longer period of increasing consumption.

TABULAR DATA OMITTED

BNC: Why is that so important?

Shoesmith: Consumers are still burdened by substantial amounts of debt, and if they continue the patterns of the third and fourth quarters as far as credit usage, it will imply a weaker and/or shorter expansion. If on the other hand consumers retrench again this year, then 1993 will be another year of modest growth of just over 3%, but the recovery will be much more sustainable.

BNC: What about 1994?

Shoesmith: I think 1994 GDP growth is likely to be higher, more like 3.5% to 4%. 1994 should be a fairly strong year. My guess is that consumers will have retired a sufficient amount of debt over the course of this year to fuel a fairly long recovery, perhaps as long as four to five more years.

BNC: What does all this mean...