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Expert Forecasts Moderate Economic Gain

The declining economic trend is
bottoming out, but the economy in 1971
will reflect more of a normal post-war
gain rather than the beginning of a new
boom, A.W. Zelomek has predicted in his
annual economic forecast at the
University.

President of International Statistical
Bureau, Inc. of New York, Mr. Zelomek
annually gives a business forecast of the
coming year at Sponsors' Day at the
University's Graduate School of Business
Administration where he has been visiting
professor since 1955.

One of the most unusual periods in
American economic, political and social
history, the last 12 months have left no
doubts that socio-economics are an important
part of economic analysis and that projections
of the future based on statistics and cycles
alone are inadequate, he says.

GNP Moderate Gain

Although still low, both the stock and bond
markets are showing substantial recoveries, says
Mr. Zelomek. Consumer income and disposable
income are at record high seasonally adjusted
annual rates, and consumer spending will be
maintained at a record high, although failing to
show growth, he says.

Gross National Product (GNP), a composite
of business, consumer and government
spending, has shown increases, but no real
growth, with the third quarter showing only a
moderate increase.

"We have not been consuming as much as
we should based on income, due to the fact
that a great deal of the increase was eroded by
price advances," he says.

Factors In Slowdown

Among the factors responsible for the
present economic downturn Mr. Zelomek
includes the high cost of money, the stock
market decline, a sharp increase in inflation and
advances in prices, especially in the cost of
services such as personal and medical care and
transportation.

Consumer buying of "high ticket" items
such as automobiles and appliances tagged,
while a trend toward increased savings
developed.

Government spending for national security
tapered off from $80 billion to $74 billion.

A restrictive Federal Reserve monetary
policy was reflected in a tag in the money
supply for a time, as well as the sharply higher
cost of money, Mr. Zelomek says.

For 1971 Mr. Zelomek predicts that the
GNP will average about 6 per cent higher than
in 1970. Real growth in 1971 may approximate
about 3 per cent, he says, as compared with the
indicated 6 per cent gain dollarwise. Such a
gain, he says, will not be sufficient to bring the
unemployment rate below the 4½ per cent level
but it should be sufficient to halt a rise in
unemployment above the 6 per cent level.

Government Spending

Mr. Zelomek predicts several factors which,
he says, will play an important part in the
higher average for GNP in 1971 and in halting
an increase in unemployment and containing
inflation:

The Federal Reserve monetary policy will
continue easy until a downturn in
unemployment actually develops. Interest rates
will tend slightly lower.

Due to a lower cost and large supply of
mortgage money. Mr. Zelomek predicts an
increase in residential volume with a total of
1.7 million new homes started.

Due to government aid and support, there
will be greater expenditures for non-residential
construction, especially schools and hospitals.

Government spending for goods and services
will tend higher with a further decline in
national security outlays depending on
developments in Indochina and the Middle
East. Ground forces will be reduced and out of
Indochina by the end of 1971. Mr. Zelomek
predicts.