U.S. Economy Sends Flurry of Mixed Signals
The unemployment rate fell to 6.6% in April, but claims for insurance by the jobless continued to rise. Stock prices have rebounded this year, but auto sales have not. Consumer confidence, meanwhile, hovers at lofty levels but consumer spending crawls in a valley.
Is this a picture of recession, recovery or something in between?
“I think the economy is still declining,” declares Bruce Steinberg, an economist with the Merrill Lynch investment firm in New York. But, he adds--in a commonly shared view--the decline is occurring “at a lower rate.”
For months, the U.S. economy has been throwing out a bewildering jumble of signals on the state of the job market, real estate activity, the nation’s manufacturers and consumer behavior. The mixed message has led to an unusual divergence of views on the economy’s strength--or lack of it.
On Friday, the Labor Department reported that the U.S. jobless rate fell to 6.6% in April from 6.8% in March. The government also reported a decline of 125,000 in payroll employment for the month, a smaller drop-off than in previous months.
By contrast, other gauges of labor conditions have been telling a somewhat bleaker story. Earlier this week, officials reported that 500,000 Americans were getting unemployment assistance in late April. That figure is 100,000 more than a year ago, and a stark measure of pain in the labor market.
The varied forces lead some to describe the U.S. economy as at a crossroads. “It’s what typically happens at or near a turning point,” said James F. Smith, an economist at the University of North Carolina. “You get very mixed signals.”
The statistical mishmash of recent weeks has led to a split among economists on whether the long-awaited turning point has arrived. U.S. recessions have lasted 11 months on average since World War II, and the current episode is now 10 months old.
Moreover, even if the economy has hit bottom, there is no certainty when it will start to spring back up, although a majority of forecasters still foresee a recovery within several months.
Friday’s Labor Department report has armed optimists with a new piece of evidence that the economy is improving. In addition to the lower unemployment rate, government officials reported that the average length of the manufacturing work week grew in April, along with overtime. These increases are considered harbingers of economic vitality.
Those who look on the bright side also can point to significant changes since last year in the outlook for inflation, oil prices and interest rates.
The government’s chief economic forecasting gauge, the Index of Leading Economic Indicators, rose for the second straight month in March. A recent national survey by Federal Reserve banks found anecdotal signs that the slump is bottoming out in many parts of the country.
Also, sales of homes appear to have bottomed out in January. Housing purchases are especially important because of their ripple effects, stimulating spending on furniture, appliances, carpeting, drapery and other products.
“I think it’s very clear where the economy stands,” said Rosanne M. Cahn, an economist with the First Boston investment firm in New York. “There’s a lot of information that says we’re in a recession--but it’s rapidly drawing to an end.”
While gauges of consumer confidence have slipped lately from their peaks since the Persian Gulf War, some--such as a survey conducted by the University of Michigan--remain at levels associated with economic recoveries, not slumps.
“Consumers have a different vision of the future (from last year),” Cahn continued. “They’re going to start making up for postponed purchases.”
Still, many analysts like to say that consumers can’t spend confidence. Those who question the timing of a recovery say they await further, concrete proof that the economy is getting stronger.
Consider the fallout of layoffs and other job reductions. Broad measures of income suggest that the employment squeeze since last year has substantially weakened the ability of many American households to buy cars, washing machines and other big-ticket items.
Since U.S. employment peaked last June, the economy has lost 1.7 million jobs, according to government figures. Manufacturing is down 1.2 million jobs from its 1989 peak; the badly hit construction industry has lost 500,000 since early 1990; the broad category of services--except for health care--has shed 700,000 since its peak in September, 1990.
“People just don’t have the wherewithal to spend,” said Steinberg. “That’s what’s holding back the recovery.”
U.S. auto makers provided evidence for that view Friday, reporting that sales fell 21% in the period of April 21 to 30. The Big Three U.S. auto makers all turned in poor sales performances, while Japanese car makers fared better.
Others worry that the debt loads held by households and companies, continued wariness by private lenders and a pattern of state tax increases will mute any recovery, even if it technically begins soon.
“The average person in the street may not see a meaningful upturn in the economy until 1992,” cautions Sung Won Sohn, chief economist at the Norwest Corp. in Minneapolis.
Such anxieties lead many analysts to hope that the Fed’s move to push down interest rates this week--which was followed by reductions in the prime rate at many banks--will unleash a new round of consumer spending on autos and other products.
North Carolina’s Smith, for instance, foresees a gradual recovery, albeit one that may be partially obscured by negative crosscurrents and ambiguous signs for the next several months.
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