Economy Well on the Road to Recovery, Clinton Says : White House: Improved growth rate, lower deficit figures are responsible for his new-found optimism. But Southern California has yet to feel the benefits.

By DAVID LAUTER

Oct. 29, 1993 12 AM PT

TIMES STAFF WRITER

WASHINGTON — President Clinton shifted to a more optimistic tone on the economy Thursday, seizing on new indicators of accelerating growth to declare that the U.S. economy has finally turned the corner.

“Lower deficits and lower interest rates have sparked the beginning of a significant economic recovery,” Clinton told a morning press conference. “Although we know our economy is still not working well enough for most Americans, I think we’re seeing the beginning of a very stable, long-term recovery.”

The chief evidence for Clinton’s optimism came from new figures showing that the economy grew at a 2.8% rate in the third quarter of 1993--a moderate pace that nonetheless significantly improved on the 1.9% rate of the previous quarter. Growth would have been even higher--roughly 3.4%, the Commerce Department estimated--but for the impact of the floods in the Midwest, which held down agricultural production.

Administration officials and private economists acknowledged that the recovery so far has bypassed Southern California, although they said that the Northern California economy recently has begun to show signs of improvement.

Several economic forecasters said they agree with Clinton that the new growth figures indicate the recovery may have moved to a more stable path.

“I think the economy is really launched into a functional recovery as opposed to just a statistical rebound,” said economist Allen Sinai of Boston Company Economic Advisers in New York. “This is the first time in five years we will see growth” above a minimal level, which would have been between 2% and 2.5% for the most recent quarter, Sinai said.

“I think we’re out of the woods in terms of growth,” said David Wyss of DRI McGraw-Hill in Lexington, Mass. But the problem remains that the rate of growth “is still sluggish,” Wyss said.

The Administration had predicted that growth for the final six months of this year would average 3%--a figure that now seems attainable. Private economic forecasters are saying that growth next year seems likely to hover near the same level.

Private and government economists generally agree that growth rates above 2.5% are enough to bring unemployment down, although the decline is likely to be in small steps. At the same time, moderate growth levels put little inflationary pressure on the economy.

Indeed, the 1.8% annual inflation rate for the third quarter was the lowest in seven years, the government reported.

For months, the President and his advisers have emphasized the slow nature of the economic recovery, fearing that talk of good news while many Americans remain insecure would make Clinton seem out of touch with economic problems--the image that sank George Bush’s presidency.

But many of Clinton’s advisers have argued recently that the gloomy approach has been overdone, decreasing consumer confidence and making the recovery even slower. Clinton now appears to have agreed with that argument.

In addition to the economic growth figures, Clinton also touted new figures on the federal deficit. For the fiscal year that ended Sept. 30, the deficit came in at $255 billion--about $50 billion less than had been predicted when the year began and well below last year’s record $290-billion deficit. The declining deficit, while a major goal of government policy, is one factor that has held down economic growth, as government spending cuts reduce demand for goods and services in the economy while tax increases reduce money available for private spending.

Despite the general optimism, Administration policy-makers and private economists agree that three dark spots remain:

* The continued recession in Southern California has significantly held back the national economy--probably knocking half of a percentage point off the overall growth level.

* Slow growth overseas has sharply limited U.S. exports.

* Uncertainty over the impact of new taxes and new federal programs, such as Clinton’s health care plan, has caused many businesses to delay new hiring.

That last factor could cause the economy to sag somewhat in the first half of next year, Donald Ratajcak of Georgia State University predicted. “The next mile down the road is good,” Ratajcak said. He predicted that growth in the final quarter of this year could hit 4% but added that “there’s nothing yet to say ‘we’re cruising now.’ ”

“There’s a high degree of caution going into next year,” Ratajcak said. Businesses “are afraid of what all these initiatives might be doing to the economy.”

Wyss concurred. “It doesn’t mean those things don’t need to be done,” he said, referring in particular to health care reform. But uncertainty over the costs of such efforts “create nervousness.”

Counteracting that uneasiness appears to have become a new goal of Administration policy, a step that might help bolster consumer and business confidence and thus spur the economy.