The Gloom of August : Latest Reports on Economy Bode Ill for Recovery

L.A. Times Archives

Sept. 26, 1992 12 AM PT

From Times Staff and Wire Reports

Bad news about the U.S. economy continued Friday with the government saying personal income, consumer spending and orders for durable goods declined in August. And the real estate sector reported significant drops in sales of existing homes nationwide and in California for the month.

The 0.5% drop in personal income was largely attributable to wages lost by Americans put out of work by Hurricane Andrew. But the 3.2% decline in housing sales nationwide came despite mortgage rates hovering at their lowest levels in nearly 20 years.

The housing situation was even worse in California, where sales of existing homes plunged 7.2% from July, and median prices fell 2.5%.

The combined reports are certain to add to consumers’ gloom about the prospects for economic recovery and add to President Bush’s political troubles as the November election nears. High unemployment has sapped consumer confidence and made the economy the top issue in the election.

The plunge in personal income, to a seasonally adjusted rate of $5.03 trillion, is the worst drop in 19 months, the Commerce Department said. If not for Hurricane Andrew, income would have increased 0.7%, the best in six months.

Some economists were cheered by the income report, but others said the economic disruption caused by the hurricane should not be ignored. All agreed that the 0.1% decline in durable goods, coming on top of a 2.7% drop in July, was a bad sign for employment prospects at the nation’s factories.

“Andrew has made a bad situation a bit worse,” said economist John M. Albertine, a Washington-based consultant. “The economy’s in the soup, and the letters in the alphabet soup spell recession.”

The Commerce Department said August’s overall income decline was more than accounted for by a storm-caused drop at an annual rate of $60 billion. Andrew’s demolition of property in southern Florida and south-central Louisiana reduced rental and business owners’ income. Work interruptions cut salaries and wages, and crop destruction hurt farm income.

The storm also depressed personal consumption spending. It fell 0.1% to $3.32 trillion, the worst showing in 10 months. Insurance payments for hurricane losses had the effect of reducing spending because of the technicalities of how the department calculates it. Without the storm, spending would have risen 0.5%.

The most positive aspect of the income report, economists said, was a 0.7% increase in wages and salaries to an annual rate of $2.93 trillion, even with the hurricane. But the gain came from higher pay and longer hours, not more jobs.

“Employers are afraid to hire people full time, so overtime has been rising,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis. “Without continuing gains in jobs, I doubt we’ll see this kind of increase down the road.”

The spending decline included a 0.5% reduction in purchases of durable goods, items such as autos and appliances intended to last for three or more years. Spending for non-durable goods, such as food and clothing, also fell. It increased for services.

“When people get an increase in income, they go out and spend it,” said economist Sandra Shaber of the Futures Group, a Washington consulting firm. “They may be very cautious about buying homes and cars, but they’re buying other things.”

The National Assn. of Realtors said that sales of previously owned homes fell in August for the fourth time in five months. Sales dropped to a seasonally adjusted annual rate of 3.34 million units.

Despite last month’s decline, home resales in August were still 4.7% above year-ago levels as home buyers took advantage of the low mortgage rates. Figures from the Federal Home Loan Mortgage Corp. showed rates on fixed mortgages averaged 7.97% in August, down from 8.13% in July. Adjustable-rate mortgages were also down, averaging 5.27% against 5.53% in July.

Realtors economist John A. Tuccillo said that “consumer uneasiness” over the persistent economic sluggishness was curbing activity in the housing market.

Daryl Delano, a housing analyst with Cahners Economics in Newton, Mass., concurred.

“Income growth is very weak and people are apprehensive about the future,” he said. “People are not willing to make those kinds of commitments.”

The decline wiped out a revised 3% gain in July. But even July’s home resales were not as strong as the 3.9% advance in the realtors’ initial estimate for the month.

The realtors said the median nationwide price for a previously owned home in August was $104,400, up 1.7% from July and 2.4% from August, 1991. The median means half of the homes cost more and half cost less.

In California, the sharp drop in housing sales indicated that the state continued to be in the throes of recession. Earlier this week, the Federal Reserve indicated that business activity in California was continuing to decline.

Seasonally adjusted sales of single-family detached homes in California fell to 368,130, down from the revised annualized rate of 396,890 houses sold in July, according to the California Assn. of Realtors.

August sales were down 7.2% from July and 10.5% from August a year ago, when 410,950 houses were sold. The median home price statewide fell to $195,530 from July’s $200,480.

Some industry officials tried to put a good face on the dire figures.

“A lot of times what you get is buyers waiting for asking prices to come down,” said Barbara K. Allen, a housing analyst with Oppenheimer & Co.

Allen said buyers are waiting for even lower interest rates. “The lower those rates come down, the more people will qualify to buy,” she said. “I think they will respond.”

Economy Remains Anemic Statistics released Friday revealed more bad news about the nations’s sluggish economy. Personal income, consumer spending, orders for durable goods and sales of existing homes all fell or stalled out in August.

EXISTING HOME SALES

Seasonally adjusted annual rate, millions of units

August., ‘92: 3.34

July, ‘92: 3.45

Aug., ‘91: 3.19

DURABLE GOODS ORDERS

New orders; billions of dollars, seasonally adjusted

Aug., ‘92: 119.7

July, ‘92: 119.8

Aug., ‘91: 122.6

PERSONAL INCOME

Trillions of dollars, seasonally adjusted annual rate