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Thursday, Jul. 16, 1998
Analysts: Economy may be cooling off
Total business inventory levels decline
By MARTIN CRUTSINGER
Associated PressWASHINGTON -- Stockpiles of goods on shelves and backlots fell for the first time in 23 months, providing further evidence that the high-flying U.S. economy has entered a period of sharply slower growth.
The Commerce Department reported Wednesday that total business inventories declined by 0.1 percent to $1.07 trillion in May.
The decline, the first since June 1996, sent economists scurrying to revise downward their economic forecasts for the just-completed April-June economic quarter.
The most pessimistic said that the overall economy, as measured by the gross domestic product, could even dip into negative territory as businesses work down stockpiles of unsold goods. Even optimistic forecasters are putting the increase in the gross domestic product, the economy's total output of goods and services, at only 1 percent to 2 percent.
That would be a huge turnaround from the sizzling 5.4 percent growth rate turned in during the first three months of the year.
``There is a significant concern that an inventory correction could throw a serious monkey-wrench into the U.S. economy,'' said David Orr, chief economist at First Union Corp. in Charlotte, N.C.
While two back-to-back quarters of negative GDP are the traditional indicators of a recession, most analysts said they were not forecasting an end to the current expansion, now in its eighth year, the third longest in history. But they said the big swing in growth they are expecting between the first and second quarters did underscore the strong opposing forces at work.
Consumer spending, bolstered by low unemployment rates and strong demand for housing, remains strong. But American manufacturers and farmers are being battered by the Asian currency crisis, which has cut into their export sales and increased in the case of manufacturers increased competition from cheaper-priced Asian goods.
``It is like the economy has one foot in hot water and one in cold water,'' said John Silvia, economist at Kemper Financial Services in Chicago. ``We have two different economies.''
Analysts said even if GDP growth does slip into negative territory in the April-June period, an actual recession is unlikely given the strong consumer sector and low unemployment rates.
``Consumer spending is strong and the unemployment rate is low. While we still have more Asian problems coming, the Fed has more than enough room to lower interest rates to prevent a recession from occurring,'' said Stanley Shipley, economist at Merrill Lynch in New York.
Federal Reserve Chairman Alan Greenspan will deliver his annual mid-year review of economic conditions to Congress next Tuesday. Most analysts believe he will continue to signal that the Fed will leave interest rates unchanged until the impact of Asia on the U.S. economy is better known.
The 0.1 percent drop in inventory levels in May came from a sharp 1 percent fall in inventories held by retailers, the biggest drop in retail stockpiles since December 1995.
The big buildup in inventories from January to March, a record $105.7 billion at an annual rate, propelled overall growth to a sizzling 5.4 percent annual rate in the first quarter.
With businesses reversing course and trying to work down unsold goods, that source of strength will be gone. When that development is combined by the rising trade deficit caused by Asia's troubles, analysts say second quarter GDP growth could easily slow to 1 percent or even less.
The inventory report showed that total sales in May edged up 0.1 percent after a 0.3 percent decline in April. That left the ratio of inventories to sales unchanged at 1.38 months, meaning it would take that long to work down inventories at the May sales pace.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web