New Signs of Slowing Economy Point to Contained Inflation
Fresh signs of a slowing economy emerged Thursday, supporting this week’s Federal Reserve Board decision against raising interest rates to avoid a new round of inflation.
Government reports showed that orders for big-ticket durable goods in August suffered the biggest loss in 16 months, and new claims for unemployment benefits jumped last week to the highest level since mid-July.
The 3.1% decline in August durable-goods orders and last week’s 11,000 increase to 340,000 in unemployment claims suggest the Fed’s decision Tuesday to leave the overnight bank lending rate unchanged was correct, analysts said.
“These numbers make [Fed] Chairman [Alan] Greenspan look pretty smart,” said economist Maury Harris of PaineWebber Inc. in New York. “All the data is telling the same story: The economy is slowing down.”
The Fed “did the right thing” by holding interest rates steady, former Fed Vice Chairman Alan Blinder said at a Washington conference.
“The strongest evidence we have for a slowdown this far is retail sales,” Blinder said. The August retail sales report, released Sept. 13, showed a paltry 0.2% increase after lackluster results in June and July.
If other economic reports in the weeks ahead support the notion of subdued growth, that will signal a reduced threat of accelerating inflation. In that case, central bankers at the Fed are likely to take another pass on raising interest rates when they next meet on Nov. 13, said James Padinha, an economist at MMS International in San Francisco.
The news sent stocks and bonds higher on Wall Street.
In one report, the Commerce Department said durable-goods orders fell 3.1%, to a seasonally adjusted $167 million. It was the biggest drop since a 3.4% decline in April 1995. Analysts had expected only a slight 0.1% decrease.
The report also showed orders in July were weaker than first thought, rising 1.4% rather than the earlier 1.7% estimate.
The decline in durable-goods orders may be a sign that high household debt is restraining consumer spending, analysts said. Personal bankruptcies will exceed 1 million this year, an annual record. That is why auto sales, for example, have been sluggish.
All major categories shared in the loss, including transportation orders, which fell 7.9%, the steepest since 11.9% in April. Orders for aircraft and parts accounted for over half of the loss, although demand also weakened for motor vehicles and parts. Excluding transportation, orders fell 1.6%, the largest decline since March.
Orders for electronic and other electrical equipment decreased 5.6%, the first decline since May. Orders were down 2.7% for primary metals and 0.7% for industrial machinery and equipment.
Overall, third-quarter economic growth could fall below 2%, based on the manufacturing figures, said Peter Kretzmer, an economist at NationsBank Corp. in New York. That would be less than half the second quarter’s 4.8% gain.
Separately, Labor Department figures showing first-time jobless claims rising by 11,000 in the week ended Sept. 21 put that measure at its highest level since July 13, when claims rose to 367,000. The four-week average for jobless claims also rose, to 328,750 last week from 326,250 the previous week.
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Durable Goods
New orders in billions of dollars, seasonally adjusted, August: 167.0
