Say It’s Not Another Recession! Joblessness And Indicators Suggest Economic Slowdown
The word recession jumped back into the economic vocabulary Friday.
In a second straight day of ominous economic news, the government reported the biggest national job loss in four years and a third straight decline for a closely watched forecasting gauge.
Economists said chances of a recession were growing. Even economists and politicians who disputed that point conceded that the economy is slowing down faster than desired.
The Labor Department’s report on unemployment showed that 101,000 jobs were lost in May, the biggest setback since the nation was pulling out of the last recession in April 1991.
Meanwhile, the Commerce Department reported that its Index of Leading Economic Indicators fell for a third straight month, declining 0.6 percent in April as eight of the 11 forward-pointing business barometers turned down.
“So much for the soft landing,” said Norman Robertson, economist at Carnegie Mellon University in Pittsburgh. “These numbers suggest a much more widespread slowdown than anyone had anticipated.”
Traditionally, three consecutive declines in the leading index is a signal of a recession. While it has accurately predicted all nine of the country’s postwar recessions, it posted three or more consecutive declines on five other occasions when no recession followed.
But economists noted that on most of the false readings, the economy slowed significantly even if it avoided an outright recession.
Wendy Palecek has known for months what government statistics are now bearing out.
Palecek’s family rarely dines out because of concern about their finances, she said. And shopping sprees these days are limited to a few items, and only when they’re on sale.
“We’re still not spending money like we were,” said Palecek, while shopping the other day at a Wal-Mart in central New Jersey. “We had to break down and buy a washer, but we held off as long as we could.”
Still, Palecek conceded, at least she’s employed.
The sharp drop in May employment was blamed on widespread layoffs in manufacturing and construction. The drop stunned analysts, who had been forecasting an increase in payroll employment of around 175,000 jobs following a loss of 7,000 jobs in April.
The overall unemployment rate, which is obtained from a separate survey of households, did edge down slightly to 5.7 percent in May. But the slight improvement followed a huge jump of 0.3 percentage point the previous month. And economists focus more on total employment, a measure of the number of people contributing to economic growth, than on the actual unemployment rate.
The economic reports received a mixed response on Wall Street. The stock market declined, but the bond market rallied. Bond traders react positively to economic weakness, because it could lead the Federal Reserve to lower interest rates, which increases the value of bonds.
Consumers interviewed Friday, on the other hand, said they prefer low unemployment.
Tillie Bensussen, a 74-year-old retiree from the Seattle area, said her son was one of 30,000 people let go by the Boeing Co. since early 1993.
“It’s hard on him and finding a job is a lot harder than people think,” said Bensussen. “He’s working a temp job right now and making a lousy six dollars an hour.”
The Clinton administration has to balance these conflicting economic goals as it tries to maintain economic growth with an election year approaching.
Treasury Secretary Robert Rubin insisted there is no threat of a recession, but conceded that recent reports of economic weakness were troubling.
“I still think the most likely outcome as we go forward over the next couple of years is what’s sometimes referred to as a soft landing,” he said during an appearance in the South Bronx of New York. “But clearly, when numbers come out that are negative as they were today, we focus with great concern and great intensity.”
Economists said the country is going through an inventory correction in which businesses cut back sharply on orders and production to work off a stockpile of unsold goods.
“The real question now is whether this correction will be short, so it is just a little hiccup, or is it going to develop self-enforcing weakness?” said Robert Dederick, an economist at Northern Trust Co. in Chicago.
MEMO: Cut in Spokane edition
Cut in Spokane edition