Latest U.S. Reports Suggest Recession May Be Nearing End
The government published fresh economic statistics Thursday suggesting that the recession may be ending, as retail sales rebounded smartly in May while inflation at the wholesale level jumped sharply.
Commerce Department figures showed that retail sales nationwide rose 1% over the month as shoppers returned to stores and auto showrooms. The rise, the third such increase in four months, followed a 0.4% decline posted in April.
Sales of domestically built passenger cars climbed 12.2% in early June over the same period last year, marking the first substantial year-to-year sales increase in 1991, the auto industry reported Thursday.
Meanwhile, the Labor Department disclosed that new claims for unemployment insurance benefits fell during the week ending June 1, suggesting that the past several months’ rise in the jobless rate may be tapering off.
At the same time, the Labor Department reported that inflation at the wholesale level accelerated unexpectedly in May, largely as a result of a resurgence of energy prices, which had been declining since early in the Persian Gulf War.
The producer price index climbed 0.6% in May, after a 0.2% jump in April. The index had declined in each of the two previous months. Wholesale energy prices jumped 2.4% in May, after a series of steep declines between December and April.
However, analysts said the steep rise in wholesale prices reflected special factors and is not likely to develop into a trend. With food and energy prices removed, the component of the index that measures the “underlying rate” of inflation rose 0.4% in May.
The combination of figures tended to support what has become an emerging consensus among economists that the recession is coming to an end and that the long-awaited economic recovery may soon be on the way.
Indeed, based on Thursday’s figures, some analysts even suggested that the rebound may be stronger than had been expected.
Giulio Martini, economist at Sanford C. Bernstein & Co. in New York, said the situation was “looking more and more like a classic pre-boom economy.”
“The big drop in unemployment insurance claims point strongly to rapid recovery,” he said. “This is an exceedingly good level to be at considering where we’ve been.”
If that happens, Martini added, the economy could begin creating jobs again even more rapidly than had been expected.
At the same time, however, Bruce Steinberg, an economist at Merrill Lynch in New York, cautioned that the new figures show that consumers “are slowly coming out of their shell” but are not yet spending freely.
“Until the job market improves a lot more, we won’t get a lot of momentum,” Steinberg said. He attributed some of the decline in new claims for unemployment insurance benefits to the fact that the sampling week contained the Memorial Day holiday.
The 1% increase in retail sales was spread virtually throughout the economy. Auto sales jumped a strong 1.6%, after months of severe sluggishness in that industry, and sales of home furnishings rose 1.5%, suggesting that the slump in residential housing has ended.
Retail sales of big-ticket items, such as appliances, rose 1.4%. And non-durables, including fuels, food and clothing, rose 0.8%.
The auto industry reported that on an annualized basis, domestic cars sold at a rate of 6.3 million units in early June, down from late May’s rate of 6.7 million. But that is still among the highest peaks in the selling rate this year.
Analysts said the modest increase in auto sales reflected the beginning of what will be a gradual pick-up in consumer demand. “It’s an indication that we clearly have seen the market bottom out, but we’re not seeing it rebound yet,” said Chris Cedergren, an analyst with J. D. Power & Associates, an auto industry research firm in Agoura Hills.
But no sweeping conclusions can be drawn from one 10-day sales report, analysts cautioned. “One 10-day period does not a recovery make,” said Clifford Swenson, an analyst with Jacobs Automotive in Little Falls, N.J.
The decline in new claims for unemployment insurance benefits brought the total to 401,000 for the week ending June 1, down from 439,000 the previous week and a peak of 543,000 in March.
At the end of the 1982 recession, it took 12 full months for unemployment insurance claims to drop that far from their highest level, Bernstein & Co.’s Martini said. By contrast, this time that decline has taken only two months.
At the same time, Martini warned, the most serious danger now is the threat of renewed inflation. “If the markets get the idea here that we have been through a recession and haven’t gotten inflation under control, then markets will be disappointed,” he said.
Financial markets have stumbled over the past two weeks with the realization that the Federal Reserve will probably not push interest rates any lower. Fed Chairman Alan Greenspan has said the central bank believes that the recession has ended.
Thursday’s report on prices brought the overall producer price index to 121.7% of its 1982 level, meaning it took $121.70 last month to buy the same basket of goods at wholesale that cost $100 nine years ago.
Times staff writer Amy Harmon in Detroit contributed to this report.
The Economy
Retail Sales Show Broad-Based Gain
* Indicator: The May retail sales figures, which represent roughly a third of the country’s economic activity.
* What it did: Sales climbed 1%, to a seasonally adjusted $152.5 billion, the sharpest in three months. The sales improvement was broad-based, with shoppers returning to auto showrooms, furniture outlets and department stores.
* What it means: Analysts say the figures provide fresh evidence of economic recovery. They have been watching sales figures to see if returning consumer confidence would translate into a sustained increase in spending.
* Highlights: Auto sales last month rose 1.6% after declining 0.7% in April. Durable goods--”big ticket” items expected to last three or more years--were up 1.4%.
Retail sales
Seasonally adjusted, billions of dollars
May, ‘91: $152.5
April, ‘91: $150.9
May, ‘90: $148.8
Source: Commerce Department
Energy Costs Boost Producer Prices
* Indicator: The May producer price index, which tracks wholesale prices.
* What it did: Wholesale prices rose a surprising 0.6%, reflecting energy prices that increased for the first time since last November. The underlying core rate of inflation, as measured by prices that exclude volatile energy and food costs, rose a moderate 0.4%.
* What it means: Analysts were not worried about inflation, saying the figure was skewed by a host of temporary factors from higher energy prices to a big jump in the price of tobacco and commercial aircraft.
* Highlights: Gasoline prices jumped 5.2%, though analysts noted that prices have started to drop. Food prices advanced 0.2%, led by vegetables costs, which shot up 22.7% in May due to adverse weather in many farm states.
Producer Price Index For Finished Goods
Seasonally adjusted change from prior month
May, ‘91: +0.6%
April, ‘91: +0.2%
May, ‘90: +0.3%
Source: Labor Department
