US Economic Indicators Suggest Start of Recovery

Payrolls, housing starts, and retail sales are up slightly; some economists are less optimistic, citing city deficits and low savings rates

ECONOMIC recovery has begun in the United States. That's what more and more economists are saying. "The recession ended late this spring, probably in April, and the recovery began in May," holds Mark Vitner, an economist with Barnett Banks Inc. in Jacksonville, Fla.

Top central bank officials are more cautious.

Richard Syron, president of the Federal Reserve Bank of Boston, says he's "not certain" the recession has ended but would be "hard-pressed to make a persuasive argument that we are not forming a bottom."

Alan Greenspan, chairman of the Federal Reserve Board, told Congress Wednesday: "It's possible we are at bottom." But he hedged by noting that the latest encouraging data are subject to revision. He said that he did not yet see "any measurable upward thrust" in the nation's output of goods and services.

In a survey early this month of 50 economic forecasters by Blue Chip Economic Indicators (Sedona, Ariz.), 39 percent said the recession ended in April or May.

Another 26 percent said it will wind up in June.

"The consensus [of economists] has been especially good at catching the start of a recovery," says Robert Eggert, editor of the publication.

What has prompted such hopes has been a string of almost uniformly favorable economic indicators in May. Nonfarm payrolls increased by 59,000, the first rise in 11 months. The workweek lengthened; overtime increased. Sales of domestic-made autos and light trucks rose to an annual rate of 6.1 million, up from a 5.5 million rate in April. From June 1-10, the rate rose slightly to 6.3 million.

Retail sales, aided by warm weather, increased 1 percent. Industrial production climbed 0.5 percent, on top of a 0.3 percent increase in April. Housing starts edged up 0.1 percent in May, following an 8.2 percent gain in April. The index of leading economic indicators - the traditional harbinger of recovery - has risen for three months straight.

Moreover, inflation was more subdued. The consumer price index rose in May by only 0.3 percent, suggesting an annual inflation rate below 3 percent.

The good news reversed an inclination for some economists to see the recovery delayed until summer or fall. But not all economists figure the recovery has started or will soon.

"I'm not a believer," says Lacy Hunt, chief economist in the US for HongKongBank group. He maintains that the positive monthly numbers do not cancel out a number of negative "fundamental" factors.

These include "minimal growth" in the nation's money supply, the fuel for economic expansion. M2, a measure of money that includes currency in circulation, checking deposits, travelers checks, plus some savings, was at the same level last month as in August 1986 if the impact of inflation is removed. In current dollars, the M2 money stock was only 3.2 percent higher than a year earlier.

Moreover, continues Dr. Hunt, per capita disposable income in real terms (what people have to spend after paying their taxes and deducting inflation) has been declining.

Consumers have managed to save only 3.6 percent of their income in April and March, well below an 8.5 percent rate in the last two quarters of the previous three recessions.

Corporations are so over-leveraged that on average they are using 48 percent of pretax operating profits to pay interest payments on their debts. States and municipalities are raising taxes or cutting spending to reduce their deficits. Abroad, recession in Britain, France, Italy, and Sweden, and a sharp slowdown in Spain could hurt US exports.

Military spending is declining.

The surplus in the supply of office space, retail space, shopping centers, and hotels and motels could take four to seven years to be filled. Retail sales dropped 2.3 percent in the first 14 days of June from their May level.

"I don't think the economy is going anywhere," says Hunt.

Gert von der Linde and Richard Hokenson, two economists at Donaldson, Lufkin & Jenrette Securities Corporation, note that in five of the previous eight recessions the economy bounced into positive growth before slipping back into recession again.

"This recession is still unfinished business," they conclude.

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