Fed's Fuel Needed

UNITED States employment numbers will get intense scrutiny when released tomorrow by the Bureau of Labor Statistics. Most economists expect the unemployment rate to remain at 7 percent and employment to increase a little. But a string of weak statistics in recent days has caused policymakers and business leaders to wonder if the nation is slipping into another slowdown.

On Tuesday, the Commerce Department reported that its economic forecasting gauge, the index of leading indicators, dropped 1 percent in March, the worst in more than two years. The statistical series that make up the index are chosen because they tend to move a few months ahead of a decline or advance in the overall economy. However, the index has on occasion moved down simultaneously with the start of a recession. It has also falsely signaled a recession.

On Monday, a survey by the National Association of Purchasing Management indicated that manufacturing output shrank in April, and the Commerce Department said construction spending dipped 0.8 percent in March. Last week Commerce estimated that the real growth rate for gross domestic product (GDP), the total national output of goods and services, in constant dollars, was only 1.8 percent in the first quarter, down from a 4.7 percent rate in 1992's last quarter. There were more disappointing statistics in personal income, factory orders, and consumer confidence.

Recommended: Could you pass a US citizenship test?

At this point, economists are arguing over the significance of these numbers. Prudential Economics, for example, holds that a business investment boom and a growth of nearly 500,000 jobs in the first quarter will return the economy to a healthier growth rate over the course of the year. But Phillip Braverman, an economist with DKB Securities Corporation, says GDP growth in the second quarter will be 1 percent or less. He argues that the modest first quarter growth in GDP was exaggerated by the swelling o f unwanted business inventories and the accounting procedure of inflating sales of computers and furniture to reflect declining prices. Further, first quarter final sales - to the user of a product rather than to a middleman - declined 0.3 percent in real terms. Nonetheless, Mr. Braverman predicts that increased hiring of part-time temporary jobs and contract work for the self-employed boost payrolls by 125,000 or more in April.

All this indicates a struggling, nearly stagnant economy. To some degree, this could reflect uncertainty over taxes. Many factors are at work in the complex American economy. However, the Federal Reserve shouldn't take any more chances on the health of the recovery. It should cut interest rates further by providing banks with more reserves.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...