ECONOMY SLOW, BUT NO RECESSION
The growing list of weaker-than-expected economic reports is raising concerns that the economy may be slowing too much, but while the hoped for soft landing may actually turn out to be a bit bumpy, economists says the odds of the slowdown deteriorating into a recession are slim.
The latest disappointing news arrived early in May when the Labor Department released the latest employment report, one of the most anticipated and closely watched economic indicators. The report showed that the unemployment rate jumped 0.3 percentage points to 5.8 percent in April. Moreover, the economy lost 9,000 payroll jobs last month, the first decline since March 1993. Many of the losses were in manufacturing, construction and the federal government, while service-related industries added 42,000 jobs.
Economists were quick to note the rise in last month’s unemployment rate was spurred by unusual factors. For example, uncommonly mild weather boosted job gains in March, making April appear weaker than normal.
Industrial production, retail sales, housing and auto sales have all been sluggish in recent months. Likewise, factory orders and the index of leading indicators, a gauge of future economic activity, both have dropped for two consecutive months.
JOBLESS CLAIMS ARE HEADING UP
Jobless claims continue to rise, up from 325,000 in October 1994 to a two-and-a-half-year high of 375,000 in May 1995, according to the U.S. Department of Labor. Many economists feel that the economy is still coming down for a landing, and some fear that it may be harder than expected.
MORE NEW BUSINESSES INCORPORATED IN 1994
Due, at least in part, to general economic growth, new business incorporations reached a high in 1994, according to reports in the Wall Street Journal. Rising 5 percent to a record 741,657 last year, the number of new businesses incorporating in the U.S. was also partly due to large companies downsizing.
The South Atlantic region showed the largest increase in new incorporations during the past year, rising 8.3 percent to 226,524. Much of this was in the manufacturing sector. Other large increases were seen in Massachusetts and California – 9.5 percent and 7 percent, respectively. Both states are on the upturn economically. The greatest declines in business incorporations in 1994 were seen in Connecticut and Rhode Island, due to defense cutbacks and high labor costs.
APICS INDEX SHOWS SLIGHT PICKUP
The index of the American Production and Inventory Control Society, Falls Church, Va., showed a sharp decline in manufacturing activity in April, followed by a slight rebound in May. The rebound indicates that manufacturing activity is more likely to remain flat than continue to decline further over the next few months, but is not necessarily a sign that the economy has returned to prosperity, according to APICS.
Declining employee hours, flat real wages, and the drag of higher mortgage payments will all retard consumer spending, while the general decline in capacity utilization will likely reduce any gains in capital spending later this year.
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