Reports Show a Slower Economy in 4th Quarter
Fresh signs of a faltering economy are emerging, with virtually no growth in the industrial sector and sales of new homes plunging to a seven-month low.
Analysts said government reports released Wednesday underscore how weak the economy was during the fourth quarter and could help persuade Federal Reserve Board policymakers to cut interest rates again next week to stimulate growth.
Stock and bond prices rose after the reports were released. Many traders agreed that the latest evidence of weakness could lead to lower interest rates, which would make their securities more attractive.
“The economy is still in an expansion, but it clearly is slowing down,” said economist David Lereah of the Mortgage Bankers Assn. “I don’t think we are in any trouble of recession, but it clearly is slowing and could use a boost.”
The Fed reported Wednesday that production at the nation’s factories, mines and utilities inched up just 0.1% in December after rising 0.3% a month earlier. Output had fallen 0.4% in October.
That means production growth slowed to a 0.8% annual rate during the fourth quarter, one-quarter of the 3.2% rate for the previous three months. For the year, output also rose 3.2%, little more than half the 5.9% growth in 1994.
At the same time, the Commerce Department reported that sales of new single-family homes fell for the fourth straight month in November, down 2.1% to a 649,000 seasonally adjusted annual rate.
The rate was the lowest since April, when it was 607,000. Sales dropped in all regions except the South. In the Northeast, they plunged to a 13-year low.
The reports, which had been delayed by the partial government shutdown, were among the last major economic data scheduled before the Federal Open Market Committee begins a two-day meeting Tuesday.
Many analysts believe the committee will cut short-term rates by a quarter of a percentage point in an attempt to energize the economy. It last trimmed the federal funds rate--the rate banks charge each other for overnight loans--in December, to 5.5% from 5.75%, the second cut of 1995.
In its report Wednesday, the central bank said the industrial sector was operating at 82.8% of capacity in December, down from 83% a month earlier and the lowest since it reached 82.6% in January 1994.
Analysts monitor the capacity rate for signs of future inflation. Many believe a rate of more than 85% could lead to production bottle-necks, shortages and rising prices.
Although the report says overall production edged up 0.1% in December, it shows that the anemic growth was due mostly to increased output of cars and light trucks and the end of the Boeing aircraft strike.
Excluding cars and trucks, output was unchanged.
Manufacturing output rose 0.1%, including a 0.3% gain in durable goods such as cars and appliances. But output of nondurable goods fell 0.2%, the second consecutive decline.
Mining output also fell for a second month in a row, down 0.2%. Production of utilities advanced 0.4%, although that was slower than the 1.5% gain a month earlier.
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New-Home Sales
Seasonally adjusted annual rate, in thousands of units:
Nov. 1995: 722
Source: Commerce Department
