Burdened by the deepening Asian economic crisis, pockets of the U.S. economy have slowed markedly in recent months even as most Americans continue to benefit from an uncommon mix of low inflation and high employment.
The slowdown, borne mainly by export-oriented manufacturers and others with a financial stake in Asia, may be reflected today in the Commerce Department’s estimate of U.S. economic activity for April, May and June, private analysts are predicting.
Already, signs of a lull are sparking fears about America’s vulnerability to spasms elsewhere in the global economy, given the nation’s increasing trade ties to Asia and the Pacific. Moreover, the news is prompting questions about whether the U.S. economy, which has charged ahead practically without pausing for better than seven years, is slipping into a shaky twilight phase.
“I didn’t foresee that a country like Indonesia would fall as far as [it] did . . ,” said Matthew Rodgers, director of international sales for Firetrol Inc., a 114-employee North Carolina company that exports electrical controls used in sprinkler systems. “I could count on my hand a certain amount of money that disappeared, just went, just like that. Gone.”
Even in an increasingly interconnected global economy, however, more than two-thirds of America’s $8 trillion in business activity takes place at home. U.S. firms also are looking to big markets in Latin America and Europe to offset their losses in Asia. So in stark contrast to Japan and other Asian nations, the picture here is largely positive.
“We’re seeing clear signs that the economy is slowing,” said Mickey D. Levy, chief economist at NationsBanc Montgomery Securities in New York. But he added: “Fundamentally the domestic economy is still sound. That’s a key point to make.”
This week’s end to the General Motors strike erased one of the economy’s biggest domestic drags. The stoppage--which had paralyzed GM’s North American production, idling more than 200,000 workers and hitting parts plants, suppliers and whole communities--is a key reason the economy had slowed of late.
Meanwhile, a whole range of pluses continues to push the economy forward: high consumerconfidence, a robust housing market, a healthy banking sector and strong sales of big-ticket appliances. This week’s survey of consumer confidence by the Conference Board, a business research group in New York, actually detected rising interest in major purchases, such as cars and houses, over the next six months.
Corporate America remains highly competitive in the world arena and U.S. technology appears to be highly valued. On top of all that, low interest rates, arising in large measure from Asia’s problems, are fueling considerable consumer and business activity, particularly in real estate.
“If anything, the Asian crisis has been a blessing in disguise for housing,” said David Lereah, chief economist for the Mortgage Bankers Assn. in Washington.
Concerns about the future are focused mostly outside America’s boundaries--on Asia and on uncertainties about the world’s expanding economic web. As perceptions of Asia’s economies have grown gloomier, investment capital has gushed into the United States from abroad, strengthening the dollar and undermining Asian currencies.
In the process, however, American goods have become costlier for Asians, further depressing U.S. sales in the region. The U.S. trade deficit is setting records every month as Americans buy a multitude of cheap imports at the same time that Asians slash their purchases of American products.
U.S. exporters have been the chief domestic victims of the overseas debacle. Sales of goods as varied as aircraft, electrical machinery and soybeans have been battered. Sales of poultry to Hong Kong, wood to Japan, aircraft to North Korea and vehicles to the Philippines are all down.
Asia’s problems, coupled with the GM strike, have led to a huge pile-up of unsold inventory on American retailers’ shelves. The cure--holding back new orders--further detracts from growth, although the problem is viewed as temporary.
Yet the U.S. economy has benefited in some important ways. Asia’s distress has applied downward pressure on U.S. interest rates. The Federal Reserve is reluctant to raise rates because that just might be enough to arrest the economy’s growth.
And what is bad for American exporters can be good for its consumers. The strong dollar has helped Americans purchase goods ranging from Thai dishware to Malayasian electronic components. Reduced economic activity in the region has kept prices down for oil and other basic commodities, helping U.S. industries and consumers.
The plunge in oil prices, however, has not been a boon to Jack Clayton, a vice president of Tenstrike Oil & Gas of Fort Worth, which drills oil in Texas, New Mexico, Oklahoma, Louisiana and Colorado.
“We’ve cut back our drilling by about 95%,” Clayton said in an interview. “Right now, we’re just sitting and waiting this out.”
At Tumbleweed Software, a 60-employee firm in Redwood City, Calif., Asia’s distress has created new opportunities. The company hired away an executive from a struggling Japanese firm and has made plans to open a Tokyo office later this year.
“It’s a lot easier for us to find office space than it was nine months ago,” said Jeffrey C. Smith, president of Tumbleweed, adding that he wants to use the downturn to strengthen his company’s position in what he views as a growing market for Internet software.
“For us it’s a land grab,” he said. “It’s a grab for market share.”
Nowhere are these cross currents more apparent than at Caterpillar, Inc., in Peoria, Ill. The company earlier this month reported less-than-expected profits of 2.5%, reflecting a big decline in demand for mining trucks, tractors and construction equipment in Asia.
At the same time, however, strong gains in the United States and buoyant markets here and in other parts of the world have helped compensate for the setbacks. Overall, America’s trade with Canada, Mexico and Europe combined more than outweighs its trade with Asia, although the roughly one-third of U.S. trade that involves Asia had been growing sharply.
“Business has been good in Europe and Latin America,” said Marsha Hausser, a Caterpillar spokeswoman. “A downturn in one area has been offset by upturns in other areas.”
Some analysts look at the problems with Asia and conclude that they will seep more broadly into the U.S. economy, ultimately undermining employment and ushering in a recession. “In large part because of the Asia problem, I think we can look forward to a contraction in manufacturing, increasing problems in agriculture. And I think the problems are going to spread to other parts of the economy,” warned David A. Levy, vice chairman of the Jerome Levy Economics Institute in suburban New York.
But for now, such pessimists are in the minority. The majority of forecasters still believe that Asia’s misfortune will not sink the U.S. economy, whatever the short-term disruptions.
“In the very near term, I think the economy could be brought to a virtual standstill,” cautioned Theodore H. Tung, chief economist at National City Corp. in Cleveland.
But Tung expects “a significant rebound” later in the year. In an interview, he recalled that the Latin American debt crisis of the 1980s did not topple the U.S. economy, even as the currencies of U.S. neighbors “went down the drain.”
“We did not suffer any significant economic downturn at all,” he said. “This is a mighty economy.”
Times researchers Lianne Hart in Houston, Edith Stanley in Atlanta and John Beckham in Chicago contributed to this story.
An update on this morning’s Commerce Department estimate of economic activity in the United States is on The Times’ Web site. Go to:https://www.latimes.com/economy
* ROSY REPORTS: With wages up, sales of new homes boomed in June. D1