Several Indicators Point to Slowing in U.S. Economy

Home building slumped in September and the pace of industrial expansion eased, according to two government reports released Thursday, confirming that there has been a slowdown in national economic activity over the late summer and fall.

According to two other government reports, there was a higher pileup of unsold goods during August on the shelves of wholesalers, retailers and manufacturers and a spike in new applications for jobless pay last week.

Analysts said the avalanche of data indicate the economy lost momentum after a second-quarter surge but that it remains healthy and is poised to keep growing at a more restrained rate.

“After a fast sprint in the first half of the year, the economy is now in an extended pause, taking some rest and recuperation,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis. “But later this year, around Christmastime, I expect to see the economy pick up steam again.”

The Commerce Department reported that building starts on new homes and apartments fell by 6% last month to a seasonally adjusted annual rate of 1.438 million. It is the biggest decline since the 9% drop of January 1995.

The Federal Reserve Board said production by the nation’s mines, factories and utilities increased only 0.2% last month after seeing a revised 0.4% rise in August. Businesses eased back to 83.3% of their maximum operating capacity in September from 83.4%.

The Fed also said growth in industrial output slowed to 4.4% from the second quarter’s 6.7% surge, adding that the winding down was evident in nearly every type of activity.

The slowdown had been widely predicted when it was reported that the gross domestic product, or GDP, boomed ahead during the second quarter at its fastest rate in two years. A wave of consumer spending carried the GDP to an annualized rate of 4.7% for the period. Many analysts expect the GDP to grow at about half that rate in the last six months of the year.

As a result, the Commerce Department reported, business inventories jumped 0.5% in August to a seasonally adjusted $1 trillion. That is the highest value since the department began tracking the data in 1982.

Robert Dederick, economic consultant to Northern Trust Co. in Chicago, said the higher stocks of unsold goods probably resulted from a combination of reduced consumer spending in the summer and planned stockpiling for goods to be sold later in the year.

“There’s no question the consumer took a little breather during the summer,” Dederick said, “but there’s nothing in any of this data that suggests we need to be negative about Christmas” spending.

The Labor Department said Thursday that claims for unemployment insurance benefits shot up by 18,000 last week to 340,000. That is more than expected; the four-week moving average also rose to its highest level since the end of July, up 2,750 to 335,750.

Nonetheless, Sohn said, there are still “reasonably strong job markets, high levels of consumer confidence and pretty good income growth.” That should mean a brisk shopping season from Thanksgiving through Christmas, when a significant portion of the nation’s retailing business is done, Sohn said.

The drop in housing activity in September suggests that rising interest rates since the start of the year had finally exerted some drag on the rate-sensitive sector. But starts were still at a healthy level, industry analysts said.

David Berson, an economist with the Federal National Mortgage Assn., said housing markets were underpinned by fairly strong job growth and that that has been showing up in steady rises in applications for new mortgages.

“We may be starting to see some edging down in housing activity, but it is not falling off the table,” Berson said.

Sohn also said economic activity has been buoyed by a ready availability of money to lend to both consumers and businesses.

Fed Gov. Lawrence Lindsey, speaking to an investment association, similarly noted that lenders have been making credit available at historically low interest rates.

“We are awash in credit,” Lindsey told the Investment Program Assn.

He also said the economy can grow faster than it has, but he emphasized that such growth should occur only in a stable-price environment in which long-term planning can prosper.

“That means low inflation rates,” Lindsey said.

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Housing Starts

Seasonally adjusted annual rate, in millions of units:

Sept. 1996: 1.44

Source: Commerce Department