Economist Predicts Tax Cut Will Boost U.S. Growth In 2001 And 2002

By John S. McClenahen Bruce Steinberg, chief economist of New York-based Merrill Lynch & Co. is bullish on the short-term impact of newly enacted U.S. tax-cut legislation. Figuring that the measure will add about three-quarters of percentage point to GDP growth during the second half of this year and half a percentage point in 2002, "the near-term effects are unambiguously positive," Steinberg asserts. Although manufacturing remains in a recession, Merrill Lynch does not foresee a generalized recession developing this year. Indeed, the securities firm expects GDP growth to rebound significantly in the final calendar quarter of 2001. The current quarter will probably match the first quarter's meager 1.3% growth, with GDP then increasing to a 2.2% annual rate in the third quarter and accelerating to a 3.7% rate in the final quarter of the year. For 2002, Merrill Lynch is looking at 4% advance in GDP, a growth rate that would match what most economists now consider to be the U.S. economy's long-term potential. However, in dramatic contrast to Merrill Lynch's positive read of the months just ahead, the Levy Institute Forecast remains extremely bearish, claiming that by late summer "there will no question that the United States is deep in a recession." For profits, employment, and output, the outlook remains negative for 2001's second six months," says the Forecast, a publication of the Jerome Levy Economic Institute of Bard College, Annandale-on-Hudson, N.Y. "Many people who now take for granted a swift [Federal Reserve Board] rescue of the economy will be questioning the ability of the [U.S.] central bank to arrest the economic decline."

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