Reports Indicate Economic Recovery May Be Weak One
The government published fresh economic statistics Friday that analysts said suggested that the recovery will be a weak one and that the economy may well turn down again later this year.
In separate reports, the Labor Department said inflation at the wholesale level declined 0.3% in June--indicating that price pressures are easing in the face of continued sluggishness in the economy--while the Commerce Department reported that retail sales levels declined 0.2%.
The combination of figures raised new fears that the long-awaited economic recovery, which analysts speculated last month may already be under way, might prove short-lived.
Economists pointed out that when prices of raw materials fall at this point in the economic cycle, it usually signals continuing sluggish activity in the industrial sector--a disappointing sign at the start of a recovery.
“All this suggests a recovery that is staggering and may even fall back into recession,” said Donald Ratajczak, chief economist at the Georgia State University forecasting service in Atlanta.
“Retail sales were down, and you wouldn’t get these declines on crude materials prices if the recovery were strong,” Ratajczak said. “This suggests we may get enough new employment to build inventories for a few months, but we’re not seeing the follow-through we need.”
The drop in consumer spending reflected in the retail sales report dashed hopes by some policy-makers that the increase recorded in May would continue. The Commerce Department reported then that retail sales had risen 1% in May after an 0.4% decline in April.
However, Friday’s report showed that not only did the increase not continue but also that the May rise was revised downward to 0.8% as a result of late-breaking data. The sales figures often are volatile and are revised during subsequent reports.
The June declines in retail sales were spread through virtually every sector of the economy--from building materials and home furnishings to general merchandise and even food. The only exception was in auto sales, where business picked up 1.1%.
At the same time, however, economists said the 0.3% drop in wholesale prices was evidence that inflation probably will remain low. The declines occurred in a broad range of categories, from energy and food prices to wholesale costs of finished goods.
Energy prices plunged 1.4%, offsetting much of a 2.4% increase that had been recorded in May. Since the end of the Persian Gulf War, energy prices have fallen at an annual rate of 19.6%. However, they still are about 16% above their levels of a year ago.
Prices of raw materials--considered a key barometer of economic activity--declined in a broad range of commodities, including scrap iron, copper ore, raw cotton, aluminum scrap, softwood logs and silver ore.
The so-called underlying rate of inflation--measured by an index that excludes volatile food and energy prices--showed wholesale prices unchanged in June. During the first half of 1991, this “core” rate of inflation has risen at an annual rate of 3.3%.
At the same time, however, wholesale prices of construction materials moved up 0.6%--their largest monthly increase in 2 1/2 years--and the index for durable goods manufacturing materials rose 0.2% during the month, after eight consecutive monthly declines.
David Wyss, economist at DRI/McGraw Hill Inc., a Lexington, Mass.-based economic forecasting firm, took a cautious view of the inflation figures, suggesting that some of the decline in commodity prices may simply reflect the recent rise in the value of the dollar.
“June seems to be coming in uniformly weaker than we thought, while May came in uniformly stronger,” he said, and “if you take the two together, we seem to be on track for a slow recovery.
“There’s no reason to panic in these numbers, but there is enough here for us to be worried about the expansion,” Wyss said.
Wyss did express concern over the slump in retail sales. “Auto sales were up less than we thought,” he said. “And what’s discouraging here is that everything was down--even food.”
Allen Sinai, chief economist of Boston Co., a New York investment firm, agreed. “There are increased signs the rebound may be stalling, and the decline in retail sales was one of them,” Sinai said.
Retail Sales
Seasonally adjusted, billions of dollars
June, ‘91: $151.9
May, ‘91: $152.2
June, ‘90: $150.1
Source: Commerce Department
Producer Price Index
For finished goods
Seasonally adjusted change from prior month
June, ‘91: -0.3%
May, ‘91: +0.6%
June, ‘90: Unchanged
Source: Labor Department
