FARM MEAT PRICES FALL; DOMINO EFFECT EXPECTED

JIM OSTROFF

ATLANTA (FNS) -- Declining prices for virtually all meats at the farm level will continue to temper retail food prices this year, according to Donald Ratajczak, director of Georgia State University's Economic Forecasting Center here.

Ratajczak, who published his views in a recently released report, and other economists are saying there is likely no end in sight anytime soon for precipitous declines in prices paid to hog farmers, who have found themselves with an enormous glut of animals due to weak markets in Asia for their products. In many large hog-raising states, live-hog prices have collapsed to 15% of their level a year ago.

"Grocery-store prices are falling" overall, Ratajczak said in the report, and this is exerting downward pressure on the price of other meats, particularly chicken, he said. Consequently, Ratajczak forecast that retail-food prices will decline by 0.1% when the December Consumer Price Index is released later this month, and will fall by the same amount for January.

For the year ending in December, he forecast that retail food prices as measured by the index will rise 2%, following a 1% rise a year earlier and a 4.9% increase for the year ended December 1996. He also forecast that retail food prices, based on an eventual dwindling of the meat surplus at midyear, will rise 2% in 1999.

However, Ratajczak said that lower meat prices will hold the overall food-at-home price complex in check through at least the first half of 1999. For example, he forecast that retail meat prices will fall by a full 1% in December and will be down 0.6% in January. Similarly, he predicted that retail meat prices will have fallen 1.4% for the year ending in December and will rise just 0.5% for the year ending December 1999.

Besides the tempering effect of meats on grocery-store prices, Ratajczak said that "no serious surge is likely" for coffee prices, and anticipated increases in prices for U.S.-grown produce -- crops have been damaged by severe weather this past year -- "could be blunted by low-cost produce from Latin America.

"Therefore, a continuation of the same growth in grocery-store prices as in 1998 is expected," he said.

In addition, "labor costs might rise slightly less if a slower economy reduces the turnover at stores. However, this should be offset by higher transportation and processing costs. Even so, the 2% gain in grocery prices suggests that further enhancement of grocery-store margins is likely."

On another economic front, despite news of big-company job layoffs and Asia's economic woes, U.S. consumers remain bullish and exhibit hardly any inclination to put a brake on spending, analysts said.

This heady assessment was bolstered by a new report that indicated consumers' confidence in the economy held steady in December, after bouncing back in November from a four-month decline dating back to July. The Consumer Confidence Index was pegged at 126.1 in December, down 0.3 from the November level.

Equally important, the report, issued by the Conference Board, found that consumers' expectations for the next month or two, the Present Situation Index, rose to 168.5 in December from 166.7 a month earlier -- continuing an upswing that began in September.

The Board's other major economic indicator, which measures consumers' expectations for the next six months, declined to 97.8 this month from 99.5 in November. However, December's Expectations Index still was solid, considering that it had plunged from 106.8 in August to 88.7 in October.

"Consumers are still relatively optimistic about the economy," said Lynn Franco, associate director of the Board's consumer research center. Franco noted that the December survey cutoff date meant it excluded events such as Congress's impeachment of President Clinton and the four-day, Clinton-ordered bombing of Iraq. Nonetheless, she remains sanguine, believing that consumers will shrug off these developments.

"Over the past 30 years consumers have weathered a multitude of similar situations quite remarkably," Franco said. "The key to strong confidence levels has been a healthy economy, and the conditions fueling this expansion show no indication of dissipating anytime soon.

"As we enter 1999," Franco added, "the outlook for continued economic growth remains positive."

Augmenting this position, the New York-based Board reported that survey respondents' anticipation that there will be increased job opportunities through June rose from 13.9% last month to 14.2% this month, and that consumers who said they expect income gains within six months inched up from 27.7% in November to 27.8% in December.

"Overall, the Confidence Index reflects a consumer who still is in a darn good buying mood, and the tiny dip from last month 'til now is pretty much meaningless," said Larry Horowitz, a senior economist with Primark Decision Economics, a Boston-based economic trends forecasting firm.

"Maybe people got a little spooked this summer with all of the announcements about layoffs at big companies, but reports indicate most of these workers have found new jobs, and the indication is that people don't feel threatened by the job outlook -- unless, perhaps, they work in the farm-machinery industry," Horowitz said. Large sectors of the U.S. farm economy have been hit hard by plunging overseas sales to Asian nations whose economies hit the skids a year ago.

Many U.S. economists, Horowitz included, are a bit more cautious about prospects for 1999.

He expects the "Asian malaise's effects to spread more though the U.S. economy, and we forecast that total personal consumer expenditures in 1999 will rise 3% in real, after-inflation terms, vs. a 4.8% increase this year."