The consensus forecast for the 1997 economy reads very much like for the 1996 economy: continued, but slower growth, says a Ball State University economic researcher.

"The forecast probably reveals more about the state of the science of forecasting than any particular wisdom about the  future," Bureau of Business Researcher Director Patrick Barkey said. "With the economy beginning the seventh year of expansion, it would take a very courageous forecaster to say exactly when and how it will come to an end.

"Predicting a 'turning point,' where growth stops and a recession sets in, is not something economists do particularly well," he said.

Barkey said the reasons for the caution in the 1997 forecast are also very much the same as those that gave rise to the cautious 1996 forecast.

Now, as then, there is concern that consumer appetites for spending are cooling, and that continued strong business spending will not be sufficient to overcome the sluggishness in the remaining sectors of the economy, he said.

"The question is, how much confidence can we place in this forecast," Barkey asks.

Even though economists were mostly on the mark when they said last year would have slow growth, the data will almost certainly show that the economy grew markedly faster in 1996 than it did in 1995, when the economy expanded by two percent. Overall growth in 1996 will probably come in near 2.8 percent.

"The performance of some sectors of the U.S. economy in 1996 was anything but slow," Barkey said. "The housing industry turned in an outstanding year, up by more than eight percent over a 1995 that was none too shabby.

"The durability of the housing boom has helped fuel activity in furniture, construction equipment, and building supplies right into the current month," he said. "In fact, growth in 1996 was fast enough for significant pressure to be mounted on the Federal  Reserve to step in and raise interest rates, especially at mid-year, when the quarterly growth peaked at a 4.7 percent annual rate. The Fed wisely resisted that pressure, and the economy cooled off on its own."

A significant fraction of forecasters are calling for faster growth in the beginning of 1997, followed by a slowdown in the year's second half, Barkey said.

The first signs of a pickup may already be appearing as the Purchasing Managers Index rose to 54 in December, from 52.7 in November, led primarily by an increase in the New Orders component of the overall index.

If this rise in manufacturing activity sticks, it may take a while for the slow growth called for by the forecasters to get here, Barkey said.