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Economy Weakens as Jobless Claims Rise Sharply

By Ron Scherer / May 26, 1995



NEW YORK

THE merry month of May has not been so merry for the US economy.

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Most of the latest economic statistics are now painting a picture of an economy that is sliding -- perhaps faster than some policymakers would like.

Yesterday, in an indication that unemployment is rising, the Labor Department reported that the number of Americans filing new claims for state unemployment last week jumped to its highest level in two and half years. New claims rose by 13,000 to 380,00 in initial claims.

''As you get closer to 400,000 claims, you get closer to something that flashes warning signs,'' says Robert Brusca, chief economist for Nikko Securities International Ltd., in New York.

Despite the increase in claims, there were improvements in Michigan, Pennsylvania, California, and Oregon. Most of these states attributed the better job news to fewer layoffs in key industries such as food, paper, and autos.

The rise in claims indicates that employers are starting to lay off some workers as the companies try to work off unusually large inventories. Inventories have swollen as consumers have pulled back from the rapid buying pace of last year.

Yesterday, the government also reported existing home sales in April fell by 6.4 percent. The slowdown in home sales had been expected because of the steady rise in interest rates.

A significant part of the weakness in the American economy is in the durable goods sector. On Wednesday, the government reported that orders for such big-ticket items as automobiles and airplanes had fallen 4 percent in April. After the report, which was more negative than expected, some economists lowered their forecasts for the second and third quarters. Few expect a recession.

Although the economy is losing momentum, economists do not expect the Federal Reserve to lower interest rates soon. ''We would not expect any action before August at the soonest,'' says Donald Straszheim, chief economist for Merrill Lynch & Co., in New York. This week, at its monthly meeting, the Fed's Open Market Committee decided to take no action on interest rates.

Even without Fed action, long-term interest rates are declining. Mr. Straszheim expects this decline to stimulate housing activity later this year. There are already some early indications consumers are responding to the lower rates. Applications for refinancing existing mortgages rose last week, for the 11th consecutive week. And as Mr. Brusca notes, the ABC-Money weekly index of consumer confidence is rising.

''In May, people said their personal finances are in great shape,'' says Brusca.