New Indicators Suggest Relapse in the Economy : * Commerce: Consumer prices rose only 0.1% in October, indicating inflation is under control. But retail sales fell 0.1% last month, and jobless claims surged in early November.
Consumer prices crept up a scant 0.1% last month, the smallest increase in seven months, the Labor Department said Thursday, laying to rest fears that Wednesday’s reported 0.7% rise in wholesale prices signaled an inflationary trend.
At the same time, the government issued two other indicators that, taken together with the small rise in the consumer price index, could signal a recessionary relapse.
The Commerce Department said retail sales in October declined 0.1% after a 0.6% gain in September, further evidence that the summer’s brief economic spark has fizzled. And the Labor Department said initial claims for unemployment insurance surged 33,000 in early November to 454,000, the highest level in six months.
At the same time, the government said Americans’ inflation-adjusted earnings fell by 0.7% in October as both average wages and number of hours worked declined.
“The rise in wholesale prices was an aberration,” said Lynn Reaser of First Interstate Bancorp in Los Angeles. “I think the numbers today are much more consistent with the way people view the current situation: that economic weakness is dominating the landscape.”
Analysts tend to give more weight to the consumer price index than the wholesale index because it more accurately reflects actual expenses.
Reaser noted that declines came in auto finance charges, new-car prices, transportation prices and apparel costs, adding: “We saw weakness in retail sales to be quite pervasive in October. . . . There is a considerable price resistance in this economy, and most companies are finding it very hard to raise prices.”
The CPI, which unlike the producer price index announced Wednesday includes costs for services, has for a year reflected a higher rate of inflation in the service sector of the economy than for goods.
But in Thursday’s report, transportation services declined slightly and most other services increased only marginally--except, as Reaser noted, “in those areas where the government has a great deal of influence--medical care and education.”
Education costs were up 0.5% in October after a 0.7% increase in September; medical service costs rose 0.6% after going up 0.7% the month before.
During the past 12 months, inflation for education has been 8.4% and for medical care 8.1%. But inflation overall has been 2.9%.
“These inflation numbers show we are making steady progress in pushing the inflation rate down,” said Michael Penzer of Bank of America in San Francisco, who noted that the CPI jumped 6.4% in the previous 12-month period, in large part because of soaring energy costs in late 1990.
“When you put all these numbers together today, that puts us back at recessionary levels,” said Donald Ratajczak of Georgia State University in Atlanta, a specialist in price movements. “The claims are recessionary, the sales are sluggish and there is no inflation in the CPI because there’s a lot of price cutting at the retail level.”
Ratajczak also pointed out that the wholesale price surge of 0.5% for new-model cars reported Wednesday did not show up in the CPI’s measure of new-car prices, which declined 0.3%. “That’s because not enough ’92 cars are selling for those higher prices to show up here,” he explained.
The Bureau of Labor Statistics, which compiles wholesale and retail price statistics, explained that in October only 30% of new cars in the month’s sample were 1992 models. Most dealers are offering 1991 cars at discounts.
“Today’s numbers make a lot of sense,” Ratajczak concluded. “But they don’t paint a pretty picture. They say this economy is on the verge of a relapse.”
In the Los Angeles-Anaheim-Riverside metropolitan area, the retail price index rose 0.2% last month before seasonal adjustment, compared to the 0.1% unadjusted increase nationwide.
Meanwhile, the Commerce Department said retail sales totaled a seasonally adjusted $152.9 billion in October, down from $153.0 billion a month earlier. It also said its earlier estimate of a 0.7% gain in September sales had been revised to 0.6%.
The Labor Department said unemployment claims peaked in March at 512,000, went below 400,000 for one week in July and have been creeping up again. Last month, they averaged 430,000, and now the first measuring period in November has pushed the total above 450,000.
Small Rise
Percent change in consumer price index from prior month, seasonally adjusted.
Oct., ‘91: +0.1%
Sept., ‘91: +0.4%
Oct., ‘90: +0.6%
Source: Labor Department
