Rep. Hamilton Urges Fed to Cut Rates Further : Economy: The government reports that orders for big-ticket goods plunged 10.5%, signaling a more severe recession.
The chairman of the Congressional Joint Economic Committee urged the Federal Reserve Board on Thursday to cut interest rates further to revive the weakening economy and to ease pressure on the nation’s fragile financial system.
The comments by Rep. Lee Hamilton (D-Ind.), panel chairman, came as the government disclosed more evidence of a deepening slump. On Thursday, it reported that factory orders for big-ticket durable goods plunged in November to their lowest levels in 2 1/2 years.
The surprisingly large 10.5% drop in orders for big-ticket goods, such as aircraft and automobiles, followed a 3.6% increase in October and was far worse than analysts had expected. It represented the biggest monthly decline since last January and signaled that the recession may be deepening and spreading across the entire economy.
And, separately, a new survey by the Conference Board, a New York-based economic research organization, confirmed Hamilton’s assessment that Americans are increasingly concerned about both their personal finances and the state of the economy.
The organization’s index of consumer confidence fell again in December to roughly half of year-ago levels, as more and more Americans have come to believe that the economy is now in a recession. The New York-based business group’s survey showed that consumers remain jittery and are wary about spending, contributing to the poor Christmas selling season reported by many of America’s retailers.
In a report that reviewed the current economic situation and surveyed prospects of 1991, Hamilton said it “feels like a recession” in the United States now, even if authorities have not officially acknowledged it. His report speculates that economists eventually will find that October was the month when the 1990-91 recession began.
“The economic expansion of the 1980s is over,” Hamilton told a press conference here. “Excesses and policy mistakes are taking their toll.” The 1980s--which saw the creation of a huge buildup of debt by both corporations and consumers--are coming back to haunt the economy in the more frugal 1990s.
“It’s going to be very tough going in the next few months” for Americans confronted with the nation’s first recession in eight years, Hamilton added. “I think individual Americans are very uneasy about the economy right now and for very good reasons.”
Hamilton noted that the economic slump now seems “broadly based,” with economic weakness most pronounced in construction but “with manufacturing not far behind.”
And he warned that the current slump may prove to be very different from and longer-lasting than other recent recessions, because the nation’s banks, savings and loans and other financial institutions are so weak that they may not be able to lead the economy in a recovery. Many of those problems were building long before the Iraqi invasion of Kuwait brought on a surge in oil prices that finally sent the economy over the edge into a recession, Hamilton observed.
“The oil shock merely capped this process,” he said.
At the same time, however, the panel’s report cautioned against quick changes in the tax or budget laws in an attempt to stimulate the economy. With the government already running massive deficits, Congress and the White House should not try to modify last fall’s budget accord to pump-prime the economy with lower taxes or increased federal spending, the document said. Such moves would only worsen the deficit and undermine Washington’s first successful effort in years to reduce the government’s flow of red ink.
“Government spending programs to reverse an economic downturn seldom have their effect before the downturn is over,” Hamilton observed. “Temporary tax cuts can be quicker, but temporary tax cuts have a way of becoming permanent, and the budget deficit is already too large.”
Instead, Hamilton argued that the deficit eventually will have to be cut even further than is called for under the five-year budget agreement that Congress passed last autumn. He said that while the economic slump will lead to larger-than-expected budget deficits in the next two years, the current agreement should not be altered to try to reduce those short-term problems.
DURABLE GOODS ORDERS Nov., ‘90: 115.9 Oct., ‘90: 129.4 Nov., ‘89: 130.2
