Signs Point To Economic Slump

Evidence of an economic slump continues to mount.

Economic reports released last week showed inventories growing while industrial production slows, a trend that cannot continue long without affecting jobs.

Conflicting reports on inflation and disappointing news on retail sales added to the economic pessimism.

Still, many mainstream economists believe concern about the economy is overstated.

The pessimists, they say, seem to be assuming the Fed will not react positively to economic and political developments.

“One wouldn’t expect the Fed to necessarily just sit tight,” and not lower interest rates, said Gordon Richards, chief economist of the National Association of Manufacturers.

Here’s a review of last week’s economic reports:

The Federal Reserve said that a steep drop in auto production caused its closely watched gauge of industrial output to fall 0.2 percent last month.

The Commerce Department said that inventories rose in April for the 13th straight month, a 0.8 percent gain led by a buildup in interest-sensitive durable goods.

Business sales fell 0.4 percent in April on top of a 0.1 percent decline in March, marking the first time in more than four years that they have slipped for two straight months.

Business sales in April at the retail level were at $192.5 billion, down 0.3 percent. At the wholesale level, they rose 0.5 percent to $184.1 billion. Factory sales fell 0.9 percent to $295.6 billion.

In an encouraging development on the inflation front, the Labor Department reported that the productivity of American workers increased 2.7 percent at an annual rate in the first quarter this year.

Consumer costs increased 0.3 percent in May, led by the biggest jump in gasoline prices in nine months. Excluding volatile food and energy components, the Labor Department said Tuesday the core rate of its Consumer Price Index edged up 0.2 percent.

The Commerce Department reported that retail sales, after slipping 0.3 percent in April, were up a mere 0.2 percent last month.

All of this is putting pressure on the Fed to do something, preferably lower interest rates.

The Fed “should act as soon as possible, like today, to arrest the downward momentum,” said Sung Won Sohn of Norwest Corp. in Minneapolis. “I’m afraid if they wait too long, the downward momentum will be too strong to reverse.”

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