The Sluggish Economy

BUSINESS news often is not reassuring in the United States these days: Car sales down 28 percent this month; bankruptcy looms as an option to owners of Bloomingdale's; industrial and retail sectors weaken sharply; a slump in manufacturing slows the economy; banks record a $744 million quarterly loss. So far, the Bush administration is sticking to its prediction that the economy will avoid a recession for another year. It is forecasting growth of 2.6 percent after inflation between the fourth quarter of 1989 and the fourth quarter of 1990. Private economists are slightly less optimistic on average, but still positive.

Recent headlines, though, suggest the economy is in trouble, maybe even in recession.

Retail sales - as revised - grew only 0.3 percent in September, and fell 1.3 percent in October. Although retail sales were up 0.8 percent in November, analysts suspect this reflects the wide number of discount sales as store chains scramble for customers, offering bargains far earlier than usual in the Christmas season. The Campeau Corporation, owners of such chains as Bloomingdale's, Jordan Marsh, Abraham & Straus, and Stern's, desperately needs cash to service its huge debts. These debts were acquired when Canadian entrepreneur Robert Campeau bought the chains in costly takeovers.

Some economists have argued that ``only the manufacturing sector is sluggish.'' They count on service businesses to prop up business activity. However, economists at Donaldson, Lufkin & Jenrette, a brokerage house, point out that the production and distribution of goods accounts for more than 60 percent of national output. So when the goods sector is weakening, it is serious.

The Federal Reserve System has moved to keep the expansion going. In the six months through September, the cost of money was reduced by 0.8 of a percentage point. Since then, the Fed has allowed short-term interest rates to drop a further 0.75 of a point. So the pace of monetary ease has accelerated. Nonetheless, the Fed's action may be too late to prevent further slowing in the economy.

If so, interest rates will fall further, more employees will be laid off, corporate profits will fall, business bankruptcies will increase. These are not pleasant expectations. Nonetheless, the US has experienced four recessions in just the past two decades and moved onward. The slumps have trimmed inflation and removed some excesses from the economic scene.

Most economists do not expect this slowdown to be a severe one, especially since the Fed has already got the nation's money supply growing more rapidly.

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