BUSINESS ECONOMISTS PREDICT MORE OF THE SAME
USED HOME SALES UP FOR THIRD MONTH
CONSUMERS LESS OPTIMISTIC IN MAY

Today The National Association of Business Economists (NABE) announced the results of its quarterly macroeconomic outlook survey, and, If you liked the economic conditions that prevailed last year, you'll like the NABE forecast for 1996 and 1997. The NABE survey repondents forecast that the Consumer Price Index would edge up a little from the 2.8 percent rate last year to around 2.9 percent in 1996 and 3.0 percent in 1997. But, they detected no signs of wage inflation. Economic growth was expected to be 2.2 percent in 1996 and 2.1 percent in 1997. This compares with a GDP growth rate of 2.0 percent last year. In a nutshell, the NABE predicted more of the same: moderate economic growth and a modest rate of inflation.

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The National Association of Realtors reported today that sales of existing homes in April were at a rate that was 0.5 percent higher than sales in March. This was the third consecutive monthly gain but was considerably less than the 6.9 percent surge in March and the 5.9 percent jump in February.

The gain in February broke a four-month streak of month-to-month decreases in used home sales.

Back in February, housing market analysts theorized that the big pickup in purchases was caused by an uptick in interest rates. Buyers who were sitting on the fence were supposedly spurred into action by the prospect that rates had stopped declining and were beginning to rise.

Now that mortgage rates have risen by a full percentage point, some analysts believe that home sales will slow. But, on May 15, the National Association of Home Builders announced that new home sales had picked up between April and May. So, there still may be some life left in the housing sector.

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Also today, the Conference Board released the results of its May consumer confidence survey. The board's Consumer Confidence Index fell from 104.8 to 101.2 from April to May. The April number was a revision downward from last month's estimate of 105.3.

The survey respondents judged economic conditions to be about the same in May as they were in April. But, they were much less optimistic about the future than they were a month ago. The board's index of future expectations dropped from 95.9 to 89.7.

We reported earlier that the University of Michigan Consumer Confidence Index also fell between April and May, dropping from 92.7 to 89.9. In the same month, the U of M Expectations Index fell from 83.0 to 80.5. So, from April to May the results of the two surveys were essentially the same.

The Conference Board and U of M indexes are based on different survey groups and sometimes move in opposite directions. For the past several months I have been calculating a composite index by averaging the two indexes together every month. This month's composite reading is 95.6, down from a thirteen-month high of 99 registered last month.

Thus, in spite of various signs of a modest pick up in economic activity in recent months, the respondents to both of these widely-watched surveys are still wary of what might happen in the near future.

Byline: Lafferty (MF Merlin)