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Is The Old Economic Buggy Breaking Down?

April 13, 1990

NEW YORK (AP) _ In one form or another you can perceive a growing hope among Americans that whatever power it is that pushes the economic pedals and levers knows what it is doing.

The mutual concern, arising from consumers and producers, employers and workers, academics and the man and woman about town is that the economy is beginning to sound like an old, poorly maintained car.

There’s a lot of coughing and sputtering to be heard, a good deal of deterioration to be seen, and a sense that there isn’t enough wherewithal to replace the old buggy.

Who’s in charge?

Theoretically, at least, economic policy is made up of fiscal and monetary actions, the first being the responsibility of Congress and the White House, the latter mainly being a function of the Federal Reserve.

Of the two, the impact of fiscal policy tends to be slower-acting than monetary policy. It involves taxing, public spending and budgets, for example, while monetary policy involves money supply and interest rates.

Interest rates remain fairly high by standards in comparable times of the past three or four decades. Action by the Fed to lower them could spur activity, but so far that body has not deemed such action appropriate.

Still, manufacturing is sluggish. The economic index by the nation’s purchasing managers association rose slightly in February, but it remained below 50 for the 11th month in a row. Below 50 generally is seen as negative and portending contraction.

Similarly, the jobless rate essentially was unchanged in March, with the civilian unemployment rate remaining around 5.2 percent of the labor force. It might have looked good in headlines, but finer print didn’t read well.

Why did the jobless rate remain steady? Good weather, rather than improving business, resulted in fewer layoffs. Federal government hiring of census workers helped. It will help in April too, when 200,000 will be added.

But a disturbing story was contained in the March data. The number of factory jobs declined by 30,000, bringing the manufacturing job loss to about 100,000 since last November. Over a year, such jobs are down by 250,000.

Single-family home sales rose 3 percent in February, but that report also wasn’t as good as hoped for. The National Association of Home Builders had expected mild weather and some mortgage rate declines to produce better news.

″The year 1990 is stacking up as a weaker year than we expected only a few months ago,″ said NAHB president Martin Perlman.

Over the 12 months ended in February, the index of leading economic indicators was down 1 percent, one of the worst year-to-year reports since the mid-1980s. Consumer spending is weak. Production readings too.

Not easily measured, but certainly not adding to economic confidence, are various news items, including the ever-worsening savings and loan losses, poor real estate markets in some areas, and the problems with junk bonds.

Once upon a time - many times - the Federal government would step in and throw money around like confetti to fuel greater growth. But governments at all levels are hurting these days, and they have little money to give.

An apparently positive signal flashed a few days ago with reports that U.S. companies would maintain their capital spending programs for new plants and equipment, but that report is being questioned because profits are falling.

With effort, it often is possible to assemble a handbasket of bad economic news like this and attempt to convince people that things are going to Hades. But to do so in recent weeks takes no effort at all.

Perhaps the most optimistic aspect of the situation is that it isn’t new. Several times in the past few years the long economic expansion seemed to be at an end. The old buggy coughed and sputtered, but then it didn’t expire.

And now, with springtime here, maybe it can find a few more miles in its worn machinery, especially if the Federal Reserve greases the gears with a shot of lower interest rates.

End Adv PMs Friday April 13

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