Reports Show Slower Economic Growth : Production: Industrial output barely rose in May, the Fed says. Gauge of inflationary pressure drops for second month.
Evidence of slower economic growth is piling up. Production at U.S. factories, mines and utilities barely rose in May, and a barometer of inflationary pressure was lower for the second straight month.
There was also reasonably good news about the productivity of American businesses. And, as expected, inventories rose slightly in April while sales slipped.
The Federal Reserve System reported that industrial production posted its 12th straight increase in May, with output of business equipment and construction supplies barely offsetting the third consecutive decline in car and truck production.
Production rose a modest 0.2% last month after a 0.1% gain in April, which was revised downward from an earlier 0.3% estimate. The size of the recent increases is down sharply from the last three months of 1993, when the economy expanded more rapidly than it had in a decade.
“I don’t think we’re on the verge of economic collapse,” said economist Sandra Shaber of the WEFA Group, a Bala-Cynwyd, Pa., forecasting service. “Put all of it together, we’ll have some non-inflationary growth. It’s wonderful.”
The Fed said the industrial operating rate--a barometer of inflationary pressure--fell in May for the second straight month.
The central bank said production facilities operated at 83.5% of capacity in May, down a tenth of a percentage point from April and two-tenths from March.
The operating rate peaked at 83.9% in June, 1989. If it rises too high, it could mean production limits are being reached--leading to shortages that spur price and wage increases.
Many analysts now predict that the Fed, which boosted interest rates four times from February to May, will impose no further tightening of credit before August at the earliest.
“The news is non-inflationary today,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis. “I’m not sure about down the road. Sooner or later, we’ll bump into capacity restraints.”
Gene Sherman, of M.A. Schapiro & Co. in New York, said the decline in both production and operating capacity for auto manufacturers is concealing stronger growth in other sectors.
“So far, so good,” he said. “But in my view, we’re at the threshold of rising prices.”
In another report Wednesday, the Labor Department said non-farm productivity rose 1.3% at an annual rate in the first three months of this year. The figure, defined as output per number of hours worked, is nearly three times the 0.5% rate earlier reported. But it still lagged behind the fourth quarter of last year, when productivity shot up at a 6.1% rate.
Also, the Commerce Department said still-lean business inventories rose 0.2% in April after falling in March for the first time in three months. It also said business sales fell 0.8% in April, the largest drop since they plunged 1.5% in December, 1991.
The Fed said car and truck assemblies peaked in February at an annual rate of 13.4 million units, and output decreased to an 11.5-million-unit pace in May. The drop in auto production from near capacity has pulled down the overall index about 0.2% per month since March, the central bank said.
Productivity
Non-farm business productivity, percent change from previous quarter at annual rate, seasonally adjusted: 1st quarter, ‘94, +1.3% Source: Labor Department
Capacity Utilization
Seasonally adjusted percent of total capacity: May, 1994, 83.5% Source: Federal Reserve Board
Industrial Production
Seasonally adjusted index; 1987=100; May, 1994, 116.1 Source: Federal Reserve Board
