As they size up the outlook for the U.S. economy at mid-1988, many analysts see good prospects for continued growth over the next six months or so.
There are several cloudy spots in their crystal balls, however, thanks to some unusual trends and unfolding events that defy measurement.The drought in the Farm Belt, for one, looms as a potential wild card whose long-term economic implications cannot yet be gauged.
In addition, there is the presidential election coming in November, the outcome of which seems likely to affect in unknown ways the continued progress of an economic expansion that will be entering its seventh year about the time the voters go to the polls.
Four years ago, many forecasters felt safe in assuming that President Reagan would be re-elected and would make no dramatic changes in economic policy. This time, there is widespread uncertainty about which candidate will prevail and on what sort of platform.
By almost all accounts, the economy enters the second half of the year in sounder shape than anyone dared hope last winter.
Donald Straszheim, chief economist at Merrill Lynch Capital Markets, projects growth of the gross national product, after adjustment for inflation at a 3.6 percent rate for all of 1988, up from 2.9 percent last year.
The economy, he said, "is in transition from being led by the 1983-1986 consumer spending boom to being led in 1987-1989 by trade and net exports."
The White House on Thursday revised its growth estimate for 1988 upward, to 3.5 percent from an earlier prediction of 2.9 percent.
In the view of a good many analysts, continued improvement is likely in the trade deficit, led by the export boom.
"It is now clear that the U.S. trade deficit is declining," said Robert Barbera at the investment firm of Shearson Lehman Hutton Inc.
"Material improvement in U.S. trade and a bottom for the U.S. dollar are the most fundamental issues confronting U.S. and world financial markets."
One big question that remains for the outlook is whether the economy will reach the point where expansion turns into an inflationary force.
According to Straszheim, "although growth seems secure for 1988, rising inflation and interest rates suggest the economy is vulnerable to a modest recession in 1989."
Allen Sinai, chief economist at The Boston Co. Economic Advisors Inc., says the economy has entered "the full employment zone" where capacity of operating facilities and the labor force could begin to show signs of strain.
"The problem for economic policies in the U.S. is to somehow traverse the full employment zone without an unacceptable acceleration of inflation and the instability that has always created a turning point for the expansion and, then, a subsequent recession," he asserts.
If the drought in the Midwest continues much longer, analysts say its effects could start to spread beyond the region and the farm economy.
Rising prices of basic commodities that become scarcer than expected because of the drought naturally evoke visions of increased inflation. However, some observers say the effect may more complicated than that.
As David Resler, chief economist at Nomura Securities International, suggested: "Over the next several months, rising food prices are likely to absorb a growing portion of most people's budgets, since food demand is generally insensitive to price.
"But this may serve to intensify consumer resistance to price increases on other goods. Thus, unless income growth suddenly accelerates, real consumer spending can be expected to remain soft."