U.S. Economy Stays Cloaked in Crazy Quilt
For two years, Americans have wondered what the economic upturn would look like when it finally arrived. Now it seems the answer is here: A patchwork quilt with holes in it.
The long-awaited recovery appears to be settling over much of the nation in a varied pattern, economists say, muted and drab in many spots, vibrant and cheerful in some, threads close to unraveling in others.
A new UCLA analysis dubs it a “ragged recovery,” one that hasn’t even descended on California or the Northeast. President Bush, worried about his reelection prospects, last week called for lower interest rates to spark growth. Economic gauges, meanwhile, bounce all over, signaling a bright future one day, warning of a slump the next.
Just how ragged is the nation’s economy right now? Actually, it appears to be improving slowly--after stalling out late last year--as America works through an agonizing mess of debt, speculation and corporate inefficiency. This year’s growth rate, generally forecast in the meager 2% range, is expected to endure and perhaps pick up in 1993, with a better job market and more spirited consumers.
“Things are moving in the right direction, but that’s all we can say,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “There isn’t a lot of strength out there.”
Frailties still linger in large regions, especially those that boomed in the past decade.
For the moment, people’s fortunes vary widely, depending on where they live and their source of livelihood. Houses sell rapidly in parts of the West, while homeowners on each coast may wait months for an acceptable bid. Midwestern makers of machinery have rallied with the help of foreign customers, but further cuts loom for aerospace firms in Southern California.
Listen to some witnesses, scattered along the oddly varied landscape:
A Salt Lake City realtor: “Houses go on the market and they sell the same day. Last year, that wasn’t the case at all.”
A Rhode Island economist: “In a nutshell, we’re experiencing the weakest recovery in the post-World War II era.”
A St. Louis manufacturing executive: “It hasn’t been real robust--but it’s coming back.”
A jobless Los Angeles man: “You keep calling them (financial employers) back week after week--but nothing seems to be going on.”
Despite the disparate views and a confusing jumble of statistics, most economists agree the United States has entered its ninth recovery since World War II. New government data shows the economy grew at a moderate annual pace of 2.7% in the first three months of this year.
Inflation appears tame, factories are producing more, and public confidence in the future is on the mend. Yet for millions of Americans, the upturn’s benefits remain maddeningly hard to grasp, the economy a continuing source of frustration.
Unemployment vaulted to 7.5% in May--the worst level in almost eight years--and it isn’t expected to subside very fast. Economic detritus of the 1980s still litters many metropolitan areas with a surplus of office buildings and shopping malls, along with battered banks, weak real estate markets and struggling retailers.
These forces are a drag on the recovery overall, although they are especially troublesome in California, the Northeast and other regions whose economies zoomed in the 1980s. Today’s patchy upturn is “more a convalescence, a healing process,” than a normal recovery, said Gary L. Ciminero, chief economist with the Fleet Financial Group in Providence, R.I., who describes the recovery as the weakest since World War II.
Here’s another key reason why ordinary citizens in many parts of the country may feel less than joyful about the emerging recovery: Employers are slashing costs and curtailing hiring--including hiring in service industries, such as finance and retail, where this generally hasn’t happened before. Such cutbacks bode well for the long term, many say, because they are expected to yield productivity gains that ultimately will boost living standards throughout U.S. society.
In the short run, however, opportunities for the jobless are limited, and many consumers remain fearful, even as corporate bottom lines--and investors--benefit from added efficiencies.
“The good news is that we’re in a recovery, and the economy is gradually beginning to heal,” said Stephen S. Roach, senior economist at the Morgan Stanley investment firm in New York. “The bad news is that it’s a type of recovery that takes a profound and lasting toll on the American worker.”
That includes white-collar workers who were cushioned from the economy’s churning in the past.
Ask Carter G. McIntyre. Formerly a vice president with the Bank of Boston, he lost the job in late 1987 when the New England concern ran into financial difficulty and slashed its Los Angeles office. He later joined an Orange County investment banking firm. But with business doing poorly, he agreed to leave late last year.
Since then, McIntyre has continued to search for a job in the sales end of financial services--along with many others who once prospered in the changing field.
“I just talked to two of my friends who were with me at the Bank of Boston--and they’re in the same position,” McIntyre said.
Unlike services, cutbacks and consolidations are old news in U.S. manufacturing, which has endured losses to overseas rivals for years.
The process continues in the recovery, however, limiting opportunity for blue-collar workers as well as their white-collar counterparts. Factories have achieved higher production this year by increasing the hours that employees stay on the job each week--to the highest level in 23 years, according to the Labor Department.
The nation’s competitiveness is enhanced by such efficiencies, but workers may be sacrificed. In St. Louis, for example, Sunnen Products--a maker of machine tools for the auto and other industries--abandoned company tradition last year and finally laid off workers, to cut expenses to stay competitive with its rivals from Germany, Japan, Italy and other countries.
Now, despite a sales pickup in the 5% range, the 65-year-old enterprise has no immediate plans to expand the work force. “The difference between this recession and other recessions is that for the people laid off, probably their jobs will not come back,” observed John E. Davis, purchasing manager at Sunnen, referring to manufacturing in general.
The austere reality points to a key reason the fledgling recovery is proceeding at a mere one-third the pace of earlier upturns: Millions of people are afraid to spend, or simply are strapped, denying the economy its most potent engine of growth.
“We don’t have anything where we can look and say, ‘Ah--there’s the spark. There’s the beginning of growth,’ ” laments Audrey Freedman, president of Manpower Plus, a human resources consulting firm in New York.
Looked at closely, though, the U.S. economic landscape divides among regions that in fact are growing at different rates. In large measure, today’s most secure states--unlike California and New England--didn’t fully join the boom of the late-1980s. Parts of the Rocky Mountains and upper Midwest, excluding Michigan, are cruising comfortably, meanwhile, while other states struggle to join fully in the upturn. The Southeast seems to be padding along near the national average.
Timing seems to be a key. Utah and other Western states, for instance, suffered earlier in the 1980s from a collapse of energy prices and real estate. But they were recovering, even as California and the Northeast entered plunges of their own. Today, while Golden State home owners may fret over the value of their property, the outlook for Utah and its Rocky Mountain neighbors has rebounded.
“I have clients from New York City, Pennsylvania, Seattle, Denver, Texas and Washington, D.C.,” said Turid Lipman, who recently invested in a new real estate franchise in Salt Lake City.
Still, the economic fortunes of different regions in the nation ultimately are linked. Vendors in one state sell their wares to customers in others, and thus benefit as the overall economy improves. Three-fourths of the ups and downs in California’s economy, for example, may be related to changes in the national economy, according to research at the Federal Reserve Bank of San Francisco.
Most experts predict that today’s modest national growth rates will warm up next year, even though growth may have slowed in recent months. The consensus of 50 private economists, polled this month by Blue Chip Economic Indicators, was for a livelier 3.1% pace next year, as hiring gradually improves, and consumers start to spend more money.
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