Economic Indicators Show That Recession Continues to Worsen

A bevy of fresh government economic statistics published Friday showed that the recession is continuing to worsen, though perhaps at a somewhat slower pace.

The Federal Reserve Board said the nation’s industrial production slipped 0.4% in January for its fourth monthly decline in a row--marking the longest string of losses since the last recession in 1982.

At the same time, the Labor Department reported that wholesale prices slid 0.1% during January, partly reflecting a decline in sensitive energy prices. However, the underlying “core” rate of inflation, which excludes volatile food and energy prices, rose 0.5%.

Finally, the Commerce Department disclosed that the nation’s foreign trade balance narrowed sharply in December to $6.3 billion, from $9.7 billion in November, as imports of oil and a wide range of other products declined--an additional sign of a weakening economy.

But analysts said the figures also raised some hope that the recession may be hitting bottom. The January drop in industrial output was significantly less than the 1.6% and 1.1% declines recorded in November and December.

And the trade report showed exports continuing strong, suggesting that trade may provide some momentum for a possible recovery later this year. “Exports are the engine of economic growth,” Commerce Secretary Robert A. Mosbacher declared in a statement.

Friday’s reports did little either to bolster or contradict the Bush Administration’s contention that the recession is likely to be a short one.

Analysts said Friday’s statistics could make it easier for the Federal Reserve to push interest rates lower, if it wants to do so to help stimulate the economy. The Fed has been easing rates substantially over the last several weeks.

But economists found scant comfort in the hint that production fell less during January than in December. The December figure itself was revised downward, showing that output plunged by 1.1% that month, rather than the 0.6% estimated in a preliminary report.

“We’ll be starting the first quarter (of 1991) from a much lower level than we expected,” said David Wyss of DRI/McGraw Hill, a Lexington, Mass., economic forecasting firm, “and (the economy’s) recovery may be slower.”

Allen Sinai, economist for The Boston Co., was more optimistic. “The industrial economy continues to decline, but it may be no longer in a free fall as it was in December, when the industrial side of the economy caved in,” he said.

The Fed’s report Friday was accompanied by new estimates that the nation’s factories are using only 79.9% of their capacity, down from 80.4% the previous month.

The performance of the price index for the month was troubling because although the overall producer price index, as the wholesale measure is called, declined, the “core” inflation rate worsened.

The core rate is considered a more accurate barometer of longer-term inflation trends.

But DRI’s Wyss contended that there were “a lot of special factors” to cause the deterioration. He noted that auto prices were recorded as rising, mainly because auto makers did not make the usual January price concessions.

And apparently some manufacturers and distributors took advantage of the new increase in federal excise taxes on alcoholic beverages on Jan. 1 to raise their prices on these products as well.

The Labor Department said the producer price index in January stood at 121.9% of its 1982 average. That means that it took $121.90 to buy the same goods at wholesale last month that sold for $100 just 11 years ago.

The report on industrial production showed that output was declining in virtually all sectors of the economy, led by a 1.8% decline in construction, and with durable and non-durable factory output declining 0.4% across the board.

Although the decline in the trade deficit was partly a reflection of the economic slump here, analysts were encouraged by the continued boom in exports.

Although U.S. sales overseas fell 2.1% over the month, the figure--$33.5 billion--was high by historical standards.

Imports plunged 7.9% over the month, to $39.7 billion, reflecting not only the drop in oil prices but reduced demand for a variety of other products.

The December figures brought the trade deficit for 1990 as a whole to $101.0 billion, down 7.7% from the previous year and the smallest yearly red-ink figure since a $52.4-billion trade gap in 1983.

The deficit hit a peak at $152.1 billion in 1987, and has been declining ever since.

Mosbacher said the trade deficit would have fallen to $91.0 billion last year except for the increase in prices of imported petroleum after Iraq invaded Kuwait. Nevertheless, he said, the improvement “lays the foundation for even greater progress in the years ahead.”

Oil imports fell to $5.2 billion from $6.3 billion in November. Volume declined to 6.4 million barrels a day from 7.1 million a month earlier, while prices declined to $26.07 a barrel from $29.44.

The import total of 197.8 million barrels in December was the lowest since 191.5 million in May, 1987.

In addition to oil, most other import categories also declined, reflecting the weak economy. Imports of foreign cars fell 10.4%, to $4 billion, after a 2.1% decline in November and a huge 39% gain in October.