|
By Michael E Kanell
Atlanta Journal-Constitution
Friday, June 1st, 2007
The economy last quarter downshifted into low gear —- slowing even more than had been reported, the government reported Thursday.
Growth during the first three months of the year sputtered along at a 0.6 percent pace, about half of what was originally reported, the Bureau of Labor Statistics said.
While only a few economists say a recession is likely —- or already under way —- that chorus has grown more vocal, and even the optimists are worried about a stall-out.
"It's a pretty weak number," said Emily Sanders, president and chief executive of Sanders Financial Management in Norcross.
For four consecutive quarters, gross domestic product —- the broadest measure of economic activity —- has been below 3 percent, which is widely viewed as a healthy and sustainable rate. GDP grew at a 2.5 percent annual pace in the fourth quarter of last year.
Slow growth is no shock. The economy has been hauling several hefty burdens —- the slumping housing market and the high price of energy. But most economists think the economy can pull the freight.
"There is no doubt that the economy is slowing and housing is slowing, but the pace of slowing itself is slowing," Sanders said. "Things are about to pick up."
Investors seemingly were concerned about the GDP data, but after a year of anemic growth they weren't spooked. During the day, the Dow Jones industrial average hit a new trading high of 13,673.07.
By day's end, the Dow had edged back down to finish with a decline of 5.44 points at 13,627.64.
Economists had expected a downward revision from the BLS' preliminary report, although the revised growth was lower than anticipated.
More disturbing were some of the reasons the estimate was ratcheted down, argued Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.
The first report pegged business inventory growth at $14.8 billion. But now, the BLS says inventories actually shrank by $4.5 billion during the three months.
"That is disturbing," Dhawan said. "If inventory is negative, that means businesses are scaling back."
Corporate profits during the quarter hit a record. So companies could pour that cash into investments and hiring. If they have trimmed back too much on production —- and demand for their products gets stronger —- business could just pump things up again, which would be good for the economy.
But the data are saying that companies are not expecting that, Dhawan said. "That kind of thing only happens when the economy is going through a lean patch either just before recession or during a recession."
The sluggish GDP helps explain why job growth has slowed the past couple of months. Unless the overall economy accelerates, more hiring trouble is likely ahead.
April was especially disappointing, with the economy adding just 88,000 jobs.
Another chapter in that continuing story comes this morning when the Bureau of Labor Statistics releases employment figures from May. Clues to that number came earlier this week from ADP, which gathers payroll data each month from a half-million private sector clients and issues an estimate of job growth.
Not counting the government, the economy added about 97,000 jobs, ADP said. Service jobs expanded by 120,000, while 23,000 jobs were cut in manufacturing. If that's reflected in today's numbers, it would be another modest showing.
Slowing growth —- in GDP and jobs —- could paint the Federal Reserve into a corner. As the economy slowly emerged from the 2001 recession, the central bank steadily raised short-term interest rates to rein in growth and the inflation it could bring.
The Fed wants a "soft landing" —- a slowdown followed by a spurt of growth. So far, the result of the rate boosts has been a slowing but still growing economy, while inflation hovers at the upper edges of the Fed's comfort zone.
If the Fed trims rates to spur growth, it would fuel inflation. But if it raises rates to chill inflation, the move risks a full-blown recession.
Thursday's GDP data sharpens the dilemma —- and may cement the status quo, Sanders said. "It leads me to believe that the Fed will stay on hold at least through the end of the year."
While there is no precise definition of recession, previous recessions have included at least one quarter of negative growth —- that is, contraction. A couple of quarters below 1 percent growth will put the question on the table.
"I do think the Fed is trying to engineer a soft landing, and so far it's succeeding. But if this trend continues, we are getting closer to the r-word," said Sanders.
|
