After 4 good years, 4 more unlikely

WASHINGTON -- The economy's solid performance over the past four years helped President Bill Clinton renew his lease on the White House. Few business leaders or economists, however, expect the economic success story of Clinton's first term to continue unbroken through his second.

Clinton suggested in his inaugural address Monday that he has only the rosiest expectations. "Once again, our economy is the strongest on earth," he said. Americans must now "shape the forces of the Information Age and the global society, to unleash the limitless potential of all our people."

Analysts are less sanguine. Though there are no current signs the 70-month old expansion has run its course, "it would be a small miracle for the economy to go four more years without a recession," said Gary Shoesmith, an economics professor at Wake Forest University. Part of that prediction is historical pessimism -- the current expansion is one of the longest on record. More to the point, though, it reflects limited expectations the Democratic president and Republican leaders in Congress will reach agreement on a plan to curtail spending on big government entitlement programs such as Medicare and Social Security, whose obligations could bring a return of expanding deficits. "Clinton made a very good move in the beginning of his term, emphasizing deficit-cutting. That helped bring down long-term interest rates," which fueled growth, said economist David Jones of Aubrey Lanston & Co. in New York. That's now been priced into the markets, Jones said, and even if Clinton achieves a budget deal with Congress to eliminate the deficit, it may not do much to stimulate continued growth. Moreover, many analysts expect the Federal Reserve to raise overnight borrowing costs for banks sometime this year to forestall a possible resurgence of inflation. That would likely slow growth and hinder efforts to balance the budget. That's why securing a bipartisan agreement to rein in entitlements is a necessary step to keeping the economy growing. Still, there's been little sign that Clinton and Republican leaders in Congress are moving closer on the issue. Neither side seems eager to anger anyone with a stake in the status quo. Republicans have deferred to Clinton and the president's only plan is to let a bipartisan commission figure out what to do. "It befuddles me that he's unwilling to take a leadership role in this since he doesn't have to worry about expending political capital," said Hugh Johnson, chief investment officer at First Albany Bank in Albany, N.Y. "I mean, what is he going to run for next?" Shoesmith, meanwhile, worries most about the possibility of an economic downturn, especially with consumer borrowing at record levels. "All it would take would be a modest shock to consumer sentiment," he said. "The loss of American lives on foreign soil; a drop in dollar; a mistake by the Fed and higher interest rates; would push Americans to retire debt instead of driving consumption." At least one company is banking on consumer-driven growth continuing, however. Banc One Corp. of Columbus, Ohio, announced Monday it will acquire First USA Inc., the fourth-largest credit card issuer in the U.S., for $7.3 billion in stock -- a sign Banc One doesn't expect credit use to dry up anytime soon. And consumers certainly feel they are better off than they were four years ago. The Conference Board's consumer confidence index, at 76.70 in January of 1993, reached a record 113.80 last month. Moreover, a CBS News/New York Times poll out today shows 56 percent of the American people approve of Clinton's economic policies, and 64 percent rate the economy as "fairly good." Even so, there's not much room for error. Consumer spending accounts for two-thirds of all economic activity, and while it continues to rise, the rate of increase has slowed. The 1996 Christmas selling season was better than 1995's, retail sales expanded last year at only two-thirds of the rate of growth during Clinton's first year in office. Except for a few quarters, the economy hasn't grown at more than a moderate pace in the last four years. The increase in the gross domestic product has averaged 2.45 percent since Clinton took office. On Wall Street there are few signs of pessimism. Since Clinton's first inaugural, the Dow has more than doubled, posting a gain of almost 3,600 points since Jan. 19, 1993. Meanwhile, the broader S&P 500 Index rose 78 percent. And the interest rate on the Treasury's benchmark 30-year bond was 7.3 percent on Jan. 19, 1993; today it's 6.82 percent. Lower rates have helped push corporate profits up and spurred the creation of record numbers of small businesses. The Small Business Administration estimates that 800,000 new businesses were incorporated in 1995, the latest year for which data are available. That's 5 percent more than the previous record of 742,000 new businesses started in 1994. "We've been able to grow from scratch in 1992 to 45 people today," said Tom Hendrickson, chairman of Triangle Environmental Inc., an environmental engineering firm in Raleigh, N.C. Hendrickson was one of several hundred corporate CEO's who endorsed Clinton last fall, "in large part due to the overall good economic climate in the last four years," he said. What he wants from Clinton in a second term is simple. "Keep us on a steady progressive growth pattern that will provide aggressive companies like ours a chance to grow in the future." Other business leaders are slower to credit the president. "We've had 142 consecutive quarters of double-digit growth" in profits at Automated Data Processing Inc., said Josh Weston, chairman of the Roseland, N.J.-based supplier of business services. "That had nothing to do with the government. No way," he said. Weston worries that with no re-election battle to concern him, Clinton will support higher business taxes and more regulations that will stifle growth. "Government can create big drags on the economy." Another concern is the ethical cloud over the White House. Legal problems involving the president, first lady Hillary Rodham Clinton or top members of their staffs could sour the country's mood enough to end the expansion. For example, the Dow fell 45 percent during Watergate. Though any of several events -- political or economic -- could bring on a recession in the next four years, Shoesmith said it wouldn't be severe. "There are not enough imbalances in the economy," he said. And it's always possible, Jones said, Clinton's luck will continue. He might not get the same economic performance of his first four years, but the expansion could continue. "I don't think things are going to fall apart," he said, "but from here on nothing will be quite as good." That may be a more realistic goal for the president, said John Mason, who tracks bank stocks as a senior analyst at Interstate/Johnson Lane, based in Charlotte, N.C. "It's enough for me that he doesn't screw things up."

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