Wall Street Toughs Out a Roller-Coaster Day : Mother Nature Puts Twist on Economic Reports for January
Bad weather in the Northeast and the earthquake in Southern California helped reduce personal incomes in January and sent new-home sales plunging 20%, the Commerce Department said Wednesday.
When combined with a third study that said help-wanted advertising also fell in January, analysts said the reports show that the economy is cooling from its feverish growth rate of 7.5% in the last three months of 1993.
Investors on Wall Street, still nervous about reports Tuesday that hinted at an inflation comeback, initially sent stocks and bonds into a nose-dive Wednesday. But later, the markets reversed direction after investors generally interpreted the reports as signs that the economy was slowing and inflationary pressures were easing.
The Dow Jones industrial average closed Wednesday with a gain of 22.51 points, while the yield on the Treasury’s 30-year bond--a barometer of long-term inflation trends--closed at 6.77%, down 0.01% from Tuesday.
“There was some panic selling early,” said Alfred Goldman, an analyst with A. G. Edwards & Sons, a St. Louis-based brokerage firm catering to individual investors. “But then people calmed down and realized that the news was pretty good because it showed the economy was slowing down a little.”
The 0.3% drop in Americans’ income in January was the first decline since July, but analysts said Mother Nature made matters look worse than they really are, according to the Commerce Department’s analysis.
Wages and salaries actually rose a healthy 1% in January from December, the report said. But the quake caused $42.5 billion in uninsured losses--including a $29.9-billion drop in the rent that landlords collect--and that helped to push overall income lower.
A decline in subsidies to farmers and higher Social Security payroll taxes also hurt personal earnings in January, the department said.
Such onetime influences made the overall decline misleading because it “doesn’t reflect fewer dollars in people’s pockets,” said economist Mark Vitner of First Union Corp. in Charlotte, N.C. If the effects of the quake and those other events were left out, Vitner said personal income would have climbed 0.7%.
In another twist to its report, the Commerce Department said consumer spending actually rose 0.5% in January from December to a seasonally adjusted annual rate of $4.53 trillion. Spending on services, from airline travel to hospital visits, jumped 0.9%, while spending on big-ticket items, such as cars and appliances, climbed a more modest 0.3%.
The savings rate dropped to 3.3% in January from 4.2% in December, the report said.
New-home sales were hurt by the Jan. 17 Northridge earthquake and severe snowstorms on the East Coast, dropping sales 20.1% from torrid levels in December.
Many builders in Southern California said their sales screeched to a halt in the first week or two after the quake, while prospective buyers on the East Coast were reluctant to visit new housing tracts in sub-zero weather.
“We also had a very strong December, so some letdown could be expected,” said Michael Carliner, chief economist for the National Assn. of Home Builders in Washington.
In a separate report that also suggested the economy may be cooling, the Conference Board said its monthly Help-Wanted Advertising Index dropped four points in January from December.
The business-funded research group, which tracks advertising volume at 51 major newspapers across the country, said advertising was strongest in the Rocky Mountain states.
In a fourth report, the Commerce Department said its final figures show that the U.S. trade deficit jumped more than 37% to $132 billion last year from $96.1 billion in 1992. It was the largest trade gap since 1987. The trade deficit with Japan reached a record $60.4 billion, up from $50.5 billion in 1992.
Personal Income and Spending
Trillions of dollars, seasonally adjusted annual rate:
Income: 5.53 Spending: 4.53
Source: Commerce Department
