U.S. ECONOMY SLOWDOWN RAISES RECESSION FEARS
  The economy faces lackluster growth
  and the risk of recession this year if the recent improvement
  in U.S. exports should falter, economists say.
      Growth will slow sharply in the next months due to weakness
  in the key housing and auto sectors and could be further
  hampered unless consumer spending picks up, they say.
      "These factors raise the question: Is there enough strength
  to keep the economy from tipping into a recession?" said Lyle
  Gramley, chief economist of the Mortgage Bankers
  Association and a former Federal Reserve Board official.
      The Commerce Department said this week that the economy
  grew by a robust 4.8 pct annual rate in the first quarter, but
  a U.S. monetary official called it a weak report.
      Housing starts fell 2.7 pct in May, and consumer spending
  rose a weak 0.1 per cent.
      "Our two largest visible industries -- autos and housing --
  are faltering, but exports are picking up some of the slack, "
  Martin Mauro, senior economist for Merrill Lynch Economics,
  told Reuters.
      Gramley said he is worried that consumer spending may slow
  because inflation is rising faster than real wages.
      To offset this, U.S. exports must continue to rise,
  returning enough jobs to the manufacturing sector to boost
  personal income and consumption, he says.
      "I expect to see enough improvement in real net exports to
  keep a recession from happening, but it is a close call,"
  Gramley said.
      Federal Reserve Board Governor Martha Seger told reporters
  that the apparent strength in the 4.8 pct growth figure was the
  result of a temporary buildup in inventories that will not last
  and said the recovery was showing anemia.
      Seger said that with the recovery stumbling along, "The pace
  of the economy and the lack of robustness must be factored into
  monetary policy" - possibly a signal that the Fed will be
  accommodative.
      Most economists predict growth slower than the 3 pct
  forecast by the Reagan administration for 1987 and warn that if
  the dollar drops suddenly, higher inflation will result and add
  to the risk of a recession.
      Mauro said a 0.5 pct rise in industrial production in May
  came despite cutbacks in output in the auto industry, where an
  inventory overhang still exists.
      He says the boost in production came from smaller
  industries like paper, chemicals, and lumber which have
  improved sales overseas due to the drop in the dollar.
      "They are not going to be enough for any kind of surge in
  economic activity, but I think they will keep us out of a
  recession," Mauro said.
      In a speech to financial planners this week, Beryl
  Sprinkel, the chief White House economic adviser, predicted the
  trade deficit will continue to improve.
      "Prospects for continued economic growth through 1987 and
  into 1988 are still quite favorable," he said.
      But private economists raise concerns about a resurgence in
  inflation.
      Allen Sinai, chief economist at Shearson Lehman Brothers
  Inc., told Congress this week that inflation would rise to 4.5
  to five pct this year and stay at that level through 1989 after
  a 1.1 pct increase in 1986.
      The rise is coming from a sharply lower dollar, higher oil
  and energy prices and rising prices for services, he said.
      "The lesson of history is that once the inflation genie gets
  out of the bottle, it continues to persist," he said, adding he
  would like the Fed to tighten credit.
      A major factor affecting inflation is the value of the
  dollar, which should continue to fall and feed inflation, says
  a prominent international banker.
      Rainer Gut, chairman of Credit Suisse, told the National
  Press Club that the dollar's downward trend against the yen and
  the mark will continue for years because the United States is
  the world's largest debtor nation.
      The Swiss banker said the economic indicators point to a
  further slackening of activity and called naive the belief that
  the five-year boom on world equity markets will go on forever.
  "It is very difficult to be optimistic," Gut said.
  

