The U.S. economy will continue to expand at a modest pace in 1987. Real GNP will rise 2% to 2.5%, or below 3% norm.

- That is not a bad outlook given the current expansion is now in its fifth year and demographic changes are down shifting the economy to a slower long-run rate of growth. - Employment will grow but not enough to reduce the jobless rate significantly. - Rising oil prices will increase inflation a bit. - Legislation in the 100th Congress affecting tax reform, trade and agriculture poses risks to the current forecast.

The consumer will again carry the 1987 economy.

- Advanced buying of new care, furniture and other big ticket items since last September will dampen spending growth in the first quarter of 1987. - Consumer spending will not get back on a normal track until the second quarter. - Consumers are burdened somewhat by debt, but not enough to crimp the economy for long. - Total employment and personal incomes will post modest gains, and tax reform will reduce income tax withholdings to boost take home pay 'marginally. - Spending will be maintained by a high level of consumer sentiment.

Economic growth aside from consumer spending will be meager.

Total investment activity will be down slightly in 1987.

- Tax reform is a two-edged sword -- businesses adversely affected will react immediately by curtailing investment, while those who benefit will bring on improvements and expansions slowly. - Business fixed investment will be mixed with a decline in construction activity more than offsetting increased equipment purchases. - High rates of excess capacity and tax reform will put off investment in new plants until 1988. - Inventory investment will be little changed from 1986. - New housing starts will continue to decline. Low mortgage rates will qualify more first-time buyers, but the household formation rate is on a steady decline from the current 1.7 million units to 1.2 million units by 1995.

Government spending will contribute marginally to overall economic growth. - The growth of federal outlays will be pared in an effort to reduce the budget deficit. - Agricultural subsidy programs are prime targets for cuts in the new Congress. - State and local spending will rise slightly, but lose of federal revenue sharing and tight budgets in such states as Texas make it difficult to forecast much growth in total.

Net exports will be the wild card in the 1987 economy,

- The value of the U.S. dollar will decline marginally, helping farmers and other exporters. - The $19.2 billion trade deficit in November was an aberration.Fear of a tough new trade bill spurred importers to increase purchases. - Trade deficit will fall back to the $12-billion October level and decline slowly thereafter.

Trade will be major risk to U.S. economy.

- A tough trade bill invites retaliation. Example: quotas on Canadian lumber products prompted tariffs on U.S. corn. - U.S. needs to reduce imports but risks losing a portion of current exports. - Trade could improve substantially if dollar weakens further and trade bill is muted. That would lead to stronger economy.

Inflation will bubble up as higher crude prices are factored into CPI.

- Could have a 6% spurt in CPI. - CPI will rise from current 2% rate of increase to near 4% -- the rate posted from 1982 to 1985. - Implicit GNP deflator will rise about 3% in 1987 -- little changed. - Inflation will not get out of hand because there are no shortages or production bottlenecks, and wages will increase little more than 3%.

Interest rates will decline a half point in first quarter, remain steady until summer and rise modestly in last half of 1987.

Summary: 1987 will be another year of modest growth and slightly higher inflation -- not bad given the alternatives.

- Federal Reserve policy will continue to be geared to keeping the economy growing, and progress will be made in reducing the federal budget deficit. - Growth will be uneven among GNP components, and agriculture will endure another tough year.