Economic Slowdown Raises Odds Of A Recession Several New Reports Cast Doubt On Prospects For ‘Soft Landing’

FRIDAY, JUNE 2, 1995

A flurry of fresh data, including the sharpest drop in factory orders in nine months, suggests the economy’s slowdown is more drastic than analysts suspected and the risk of a recession cannot be ignored.

The stock market, rallying from a drop early in the session, climbed to another record. The Dow Jones industrial average rose 7.61 points to 4,472.75.

Bonds continued to rally, pushing the yield on the Treasury’s main 30-year bond down to 6.60 percent.

The Commerce Department said Thursday factory orders fell for the third straight month in April, the first time in nearly two years that has happened. The 1.9 percent decrease was the largest since orders declined 2 percent in July.

“It’s not too early to seriously consider a recession,” said economist Cynthia Latta with DRI-McGraw Hill, a Lexington, Mass., forecasting firm. “But I wouldn’t want to bet too much money on one at this point.”

Analysts said the odds now favor a harder landing than previously predicted. But they said the economy is approaching another turning point that could lead either to new momentum or a further retreat.

“The economy is taking a bigger hit than was expected. The soft landing is giving evidence of being a bumpy landing as of now,” said Robert Dederick of the Northern Trust Co. in Chicago.

The next key indicator is the May employment report to be announced today by the Labor Department.

Among Thursday’s developments:

The Commerce Department said personal income and spending both rose a modest 0.3 percent in April. The income gain was the smallest in five months, and disposable income - income after taxes - fell 0.7 percent. Outlays for bigticket, interest rate-sensitive durable goods such as cars and appliances declined 2.4 percent.

The Labor Department said new claims for state unemployment insurance rose by 9,000 to a seasonally adjusted 389,000 last week, the highest in four months. New claims for jobless benefits shot up by 13,000 the previous week and the four-week average is the highest in more than 2 years.

The Federal Reserve said a survey of bank lending officers shows demand for consumer loans weakened in the last three months, although demand for credit by businesses increased.

The government reported Wednesday that economic growth in the first three months of the year slowed to 2.7 percent at an annual rate, about half the booming 5.1 percent expansion that closed out last year.

While analysts said growth this quarter is even smaller and could slip further in the summer, some expect a rebound later this year.

“I don’t think the evidence is incompatible with the notion the economy is still moving forward,” said Charles Renfro of Alphametrics, a forecasting firm in Bala Cynwyd, Pa.

The drop in factory orders in April was led by a 4 percent plunge in interest-sensitive durable goods - the biggest decrease in more than three years.

The Commerce Department said that - even excluding the volatile transportation component - factory orders were down 0.8 percent in April.

The decline in orders was widespread, led by a 9.3 percent dive for cars, aircraft and other transportation equipment. It was the third drop for transportation goods in the last four months.

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