Recession not a done deal
NEW YORK – Gas prices are high, food’s more expensive and the job market’s cold, but the U.S. may still avoid a recession.
That was the message Monday from a private business group whose index of leading economic indicators defied expectations and inched higher in April.
The New York-based Conference Board said its forecast of future economic activity rose 0.1 percent in April, matching a 0.1 percent increase in March. Economists had expected a 0.1 decrease in April.
The index is designed to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.
“These data certainly reflect a weak economy but not one in recession,” said Ken Goldstein, labor economist at The Conference Board. The small increases in March and April, which followed five months of decline, could be a signal the economy may not weaken further, he said.
Six of ten leading indicators the Conference Board measures rose in April, including stock prices, interest rate spreads and housing permits. Those increases more than offset the sharp declines in average weekly hours worked and consumer spending.
The six-month rate of decline for April, which economists look to as a predictor of recessions, was negative 1.2 percent, which points to sluggish growth at best, said economist Dana Saporta of German investment bank Dresdner Kleinwort.
It remains to be seen whether the economy’s deceleration resumes after “a temporary pop from tax rebates,” Saporta said. The rebates, which began arriving late last month, provide up to $600 for an individual and $1,200 for married couples, based on income levels. In addition, people are entitled to $300 for eligible children younger than 17.
The Bush administration reiterated Monday that it was too soon to consider a second stimulus package. After getting an economic update from Treasury Secretary Henry Paulson, Bush said Paulson had assured him people are getting the money as promised.
“It should help our economy, and more importantly, help people pay their bills … and take care of their families and shop,” the president said.
Other economic signs remain mixed.
“Lowe’s Cos., the nation’s second largest home improvement retailer, reported a 17.9 percent drop in first-quarter earnings and lowered its guidance for the year on Monday. Robert A. Niblock, the company’s CEO said, “As expected, the challenging sales environment we have been experiencing for the past six quarters continued into the first quarter of 2008.”
In contrast, Wal-Mart Stores Inc., the world’s largest retailer, and TJX Cos., which operates T.J. Maxx, Marshalls and HomeGoods, reported strong first-quarter profits last week.
“More than half the members of the National Association for Business Economics say the economy has started or will enter a recession this year, according to a survey released Monday. Now, 56 percent of the economists think the economy has started or will enter a recession this year, up from 45 percent in a survey in February.
They forecast 1.4 percent growth for the year, which would be the weakest growth since the 2001 recession.
“It’s too early to determine what the length of this slowdown is going to be going forward, because the most important underlying risk factor, the U.S. housing market, remains in a difficult space,” said Roger Bayston, senior vice president of investment manager Franklin Templeton fixed income group.
The housing market swoon may continue to the end of this year, at the minimum, Bayston said.
Along with housing, Americans are contending with a host of other worries. Food prices are rising, and gas is an average of $3.79 for a gallon of regular, according to a survey by AAA and the Oil Price Information Service. In some parts of the country, gas costs more than $4 a gallon.
The rising cost of food and fuel, and the inflation they could spark, may prompt the Federal Reserve to maintain interest rates at current levels when its policy-setting committee meets on June 25. The Fed last lowered rates to 2 percent in April, but it signaled the campaign that reduced rates seven times from 4.75 percent could be ending.