Demand for Goods and Services Is Lowest Since 1991

Second-quarter demand for U.S. goods and services was the weakest since the economy was emerging from the last recession, according to a survey of corporate economists released today.

The National Assn. for Business Economics’ index of total demand from consumers, business, trade and government fell to 3 for the period from April to June--the lowest since the fourth quarter of 1991--from 12 in the previous quarter.

Falling demand squeezed corporate profits and prompted companies to cut costs by trimming spending on capital improvements and eliminating jobs, the survey showed.

“The business climate continued to deteriorate in the second quarter,” said Richard Berner, chief U.S. economist at Morgan Stanley Dean Witter & Co. in New York and president of the group. The weakness in the index, “especially the capital spending component, hints at the breadth of the U.S. deceleration.”

Index readings are the difference between the percentage of respondents who say a given category is increasing and those who say it’s falling. Any reading above zero represents growth.

The NABE is a professional association of people who use economics in their work. The results represent responses from 135 members.

Falling demand forced a decline in spending on equipment such as computers and software and new machinery. The group’s capital spending index fell to minus 9 in the second quarter from zero in the first three months of 2001. The latest reading was the lowest since the first quarter of 1991, when the economy was last in recession.

Still, the worst for capital spending may have passed, the survey showed. Thirty-three percent of respondents expect their spending on capital improvements to increase over the next six months, up from 25% in the prior survey.

Profitability was also under pressure from slowing demand. Forty percent of those surveyed said profit margins fell during the period, and 20% said profits increased. The resulting minus 20 reading for the profit index was the lowest since 1990. The weakness was widespread through all industry groups.

The profit picture presented by the NABE may help explain why Federal Reserve policymakers have lowered the overnight bank lending rate six times since the start of the year.

“The patterns evident in recent months--declining profitability and business capital spending, weak expansion of consumption and slowing growth abroad--continue to weigh on the economy,” central bankers said in a statement announcing their latest interest rate reduction June 27, which brought the rate to 3.75%, the lowest in seven years.