New data show air keeps hissing out of U.S. growthgreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
New data show air keeps hissing out of U.S. growth Tuesday November 28, 4:07 PM EST By Svea Herbst-Bayliss
NEW YORK, Nov 28 (Reuters) - Hints that U.S. growth is slowing have turned into hard evidence, economists said on Tuesday, pointing to manufacturing and consumer confidence data showing the air is still hissing out of the world's largest economy.
In fact, the economy is slowing so much that analysts said the Federal Reserve may actually need to start cutting interest rates early next year after having tightened credit for nearly a year to help slow growth to a more sustainable pace.
In Washington, the Commerce Department said on Tuesday orders for costly U.S. manufactured goods -- such as airplanes, cars and furniture -- dropped sharply in October. In New York, the Conference Board, an economic research group said U.S. consumers are now less confident than they have been for more than a year.
While economists said special factors helped pull both durable goods orders and the consumer confidence index lower, the data also contained proof that a bonafide trend of slower growth may now be in place.
"Today's numbers show there is harder evidence of a slowing in growth. The soft landing that everyone had expected may now turn out to be more bumpy," said Carol Stone, deputy chief economist at Nomura Securities International Inc.
And these numbers confirm what many Wall Street economists have suspected. Just last week, several key investment houses pared back third-quarter growth forecasts and said the slowdown may well continue into next year.
Durable goods orders slumped 5.5 percent in October, far more than the 1.3 percent decline Wall Street economists had predicted.
A hefty 15.8 percent drop in orders for transportation equipment pulled the overall index down but without the transportation component, the index fell 2.2 percent.
Dresdner Kleinwort Benson economist Kevin Logan said this report fits in with the picture that the economy is slowing but does not yet suggest that the slowdown will be so abrupt as to call it a hard landing.
Economists refer to a recession when growth contracts as a hard landing, while they use the term soft landing to describe when economic growth slows from red hot levels to a more sustainable pace.
Consumer confidence meanwhile fell for the second straight month, dropping to its lowest level in over a year at 133.5, the New York-based economic research group said.
The group's chief economist Lynn Franco said the drama surrounding the still-unresolved presidential election helped take a bite out of consumer confidence.
She said the unprecedented electoral stalemate is confusing consumers enough to sow the seeds of worry, and chip at the extraordinary confidence that has prevailed during Bill Clinton's presidency.
That worry is reflected in the "expectations" component of the consumer confidence index, which she said acts like a shock absorber for non-economic events dropped to 103.4 from 108.4 in October.
The "present conditions" index, meanwhile, rose modestly to 178.7 from 176.8, suggesting that consumers still thought the economy is strong.
However, the overall index is still far from the year's peak reading at 144.7 seen in April and January because consumers worry about high oil prices and weakness on Wall Street.
"People are starting to take notice that the stock market is down," Stone said.
Americans are beginning to feel less well-off in part because Wall Street has stopped performing as well as it did last year when many consumers felt richer, on paper at least, as their stock holdings had appreciated.
Because the Fed's string of six interest rate hikes from June 1999 to May 2000 seem to have been a success in the way they have helped slow growth, economists are now beginning to wonder whether the Fed's medicine was too strong.
With growth rates slowed from above 8 percent at the end of last year to just under 3 percent in the this year's third quarter, more and more economists are saying it will soon be time for the Fed to reverse policies and consider cutting rates if the slowing continues.
A first step would be to drop the so called tightening bias which says policy makers are more worried about the risks of inflation than the dangers of recession.
Economists say this could occur as soon as December 19, when the Fed's policy-setting committee next meets for its final session of the year.
-- Martin Thompson (firstname.lastname@example.org), November 29, 2000
I thought that was a very cute headline. My parrot 'Spunky' thought it cute also. Afterall he is the one who picks the stories to post.
-- Martin Thompson (email@example.com), November 29, 2000.
What a great birdy! Keep Spunky spunking along!
-- (firstname.lastname@example.org), November 29, 2000.