Receding Recovery : Figures Show Slim Chance of Rebound by November
Chances of an economic rebound ahead of the November election faded Tuesday when government figures showed industry weak, construction slow and overall economic growth unlikely to pick up much for six months.
“Like a stick of butter left out of the refrigerator, the economy seems softer by the minute,” concluded economist Jack Albertine, a Washington-based consultant.
The Commerce Department reported that the index of leading indicators, the government’s main economic forecasting gauge, rose a scant 0.1% in July.
The slight rise in the index, which forecasts economic activity six to nine months ahead, was not enough to reverse a 0.3% decline in June.
The purchasing managers’ index, an independent guide to activity in the industrial sector, also showed weakness among big corporations, one of the first indications of economic health in August.
The National Assn. of Purchasing Management’s index fell to 53.7% last month from 54.2% in July. A figure above 50 shows industry expansion, but economists said that the figure was low enough to indicate that companies are not hiring.
“Clearly employment is the weak link in the whole recovery. The economy just does not seem able to work out of its lethargic pattern, its sort of zigzag recovery,” said Lynn Reaser, economist at First Interstate Bancorp in Los Angeles.
The Commerce Department also said spending on construction--including everything from new houses to offices, roads and sewers--dropped for a second straight month in July.
It declined 0.6% to a seasonally adjusted annual rate of $422 billion. In June, the indicator slipped 0.4%.
Reaser pointed out that June spending was revised upward from a previously reported 1.5% fall.
“It takes some of the sting out of the July drop, but the decline in home-building outlays particularly is a source of concern because housing should be leading us out of this recession,” the economist said.
Spending for new homes and apartments fell to a rate of $180.6 billion from $182.6 billion.
That buttressed a separate report Monday that said that sales of new homes dropped in July as consumer demand weakened, despite lower mortgage rates and the lowest average home prices in 3 1/2 years.
Sung Won Sohn, an economist with Norwest Corp. in Minneapolis, said the economy is unlikely to gain vigor until consumers and companies pay down their debts.
He said defense industries also must get used to fewer contracts and leaner operations, and consumers must begin to rebuild their confidence.
“These structural problems are the reasons why lower interest rates are not perking up the recovery,” said Sohn, adding that they will not be resolved before voters go to the polls in November.
More interest rate cuts may be needed, since cheaper credit is the only policy remedy available to federal authorities.
The government has run up staggering deficits and cannot afford to introduce stimulative tax measures such as the $87-billion spending package unveiled last month in Japan.
The government’s index of leading indicators takes in 11 measures of economic activity. Only five rose in July, while five dropped and one was unchanged.
The positive contributors were more building permits, fewer applications for jobless benefits, higher stock prices, slower vendor deliveries and more consumer goods orders.
Index of Leading Indicators
Seasonally adjusted index, 1982 = 100
July ‘92: 149.6
June ‘82: 149.5
June ‘91: 145.6
Source: Commerce Department
Purchasing Managers Index
Aug. 1991 53.5%
Aug 1992 53.7%
The purchasing managers index tracks overall business activity at 300 industrial companies.
Source: National Assn. of Purchasing Management
Construction Spending
Billions of dollars, seasonally adjusted
July ‘92: 422.0
June ‘92: 424.4
July ‘91: 397.0
Source: Commerce Department
