Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus,americast.usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Oct 5 1992 Date: Mon, 5 Oct 92 04:46:08 EDT Message-ID: 10-05 0000 BONUS: Economy is still stifled USA TODAY Update Oct. 5, 1992 Source: USA TODAY:Gannett National Information Network By this time - a month before the presidential election and more than two years since the recession began - the economy was supposed to be in good shape. Six months ago, economists were nearly unanimous in saying that by now people would agree the economy was healthy and growing. Things haven't quite worked out that way. WHERE DOES THE ECONOMY STAND? Friday, the Labor Department capped a miserable week of economic news when it said that although the jobless rate edged down to 7.5% last month from 7.6% in August, the economy lost 57,000 jobs. One million more people were unemployed last month than in September 1991. On Oct. 27, the Commerce Department is expected to report that GDP grew at a weak 1.7% annual rate last quarter, according to a USA TODAY:CNBC survey of 52 economists. WHAT IS GOING ON WITH THE ECONOMY? Well, this isn't the second Great Depression. The economy is growing - painfully and fitfully. The jobless rate hasn't neared the 10.8% peak of the 1981-82 recession. But the economy can't generate enough growth to create jobs, bring down unemployment and restore shattered consumer confidence. President Bush and some commentators blame the media for focusing too much on bad news - depressing confidence and, as a result, economic growth. Some experts also say uncertainty over who will be the next president is making consumers and businesses nervous about spending. HOW IMPORTANT ARE THOSE FACTORS? Economists say those are minor factors. "I think there's something going on out there that's much bigger than any of us thought," says Tucker Hart Adams, chief economist at Central Banks of Colorado. "And the traditional remedies for a weak economy - low interest rates and government spending - aren't working" or can't be used. "I'm becoming more and more convinced," she says, that "we'll continue to slog along and that 1993 will be just a little bit better than 1992, which was only a little bit better than 1991." Most experts agree with her. WHAT FORCES HAVE DEBILITATED THE ECONOMY? Businesses and many consumers are reluctant to spend and take on debt, no matter how low interest rates go, because they're still trying to pay off bills from the 1980s. In July, consumers were carrying $722 billion worth of short-term debt, such as auto loans and credit-card balances - about the same as a year earlier. Also, demand for houses, cars and major consumer goods is slowing naturally. Through the '70s and '80s, the 78 million baby boomers bought their first homes, fueled car sales and kept other consumer goods in demand. Now they're older, and they're more interested in saving. New home sales are way down from the 1980s. WHAT ARE SOME OTHER FACTORS? Economies in Europe, Canada and Japan - critical export markets for U.S. manufacturers - are weak. Exports are still growing - 6.2% the first seven months this year, compared with the same period last year. But that's down from 7.1% growth last year and 8.2% in 1990. U.S. corporations are still cutting costs by cutting jobs. Their layoff announcements are rattling consumers, most of whom are worrying about their own jobs. And those fears give them a reason to think twice before spending. WHAT HAVE THE LOW INTEREST RATES DONE? Falling interest rates have had a chilling effect on retirees and others who get a lot of their income from interest payments. At $700 billion last year, interest income accounted for 15% of all personal income. By July this year, interest was 13% of income. Six-month certificates of deposit that paid 7.3% at the end of 1990, and 4.4% at the end of last year, now pay 3.1%. Dwindling interest income has led people to put off buying cars, taking trips or spending on non-essentials. HOW HAS GOVERNMENT SPENDING INFLUENCED THE ECONOMY? Pentagon spending cuts as the military adjusts to the post-Cold War world have led to huge layoffs at defense contractors. The federal budget deficit, which is expected to total a record $333 billion the fiscal year that ended Wednesday, will likely edge close to $400 billion this year. All that red ink, and the borrowing the government must do to pay its bills, is keeping long-term interest rates a percentage point or so higher than they would be otherwise. If mortgage rates were a percentage point lower, economists say, home sales would be stronger and that would help the economy. WHAT IS THE FORECAST? For all those reasons, executives and economists agree the economy likely won't strengthen much the rest of this year or in the first half next year. Many say a recovery that's felt by most people may not arrive until 1994, no matter who is elected president Nov. 3. Other business people aren't even that optimistic. "The economy's definitely getting worse, not better," says Jack Newbury, a contractor who installs glass on commercial buildings. He's been hard hit because his business is in southern California, a region that's suffering due to a glut of vacant office space, defense-industry layoffs and a dip in tourism after the Los Angeles riots. WHERE IS THE POTENTIAL FOR IMPROVEMENT? California's jobless rate last month: 9.4%. The only jobs available to bid on, Newbury says, are at the relatively few public construction projects such as schools and prisons. "We're just trying to make it through this period," Newbury says, "in the hopes that when it's over we'll still be here and a lot of other companies won't." Even companies with good news to report aren't crowing. "Business is picking up a little bit. Our business is clearly in a recovery, but it's not strong enough to be called a real good expansion," says Clark Johnson, CEO of Pier 1 Imports, the Fort Worth-based retailer of home furnishings. WHAT HAPPENS NOW? "Many of us underestimated the time it would take to work through these problems," says Lynn Reaser, chief economist at First Interstate Bank in Los Angeles. "But we will get through them." Reaser says consumers will eventually feel more like spending. That'll persuade businesses to do some hiring. That will lead to gains in consumer confidence and more spending. "I think a year from now the economy will be better," Reaser says. "It will feel more like a recovery. I don't think the old laws of economics have been repealed. We will get through all this." Bonus Editor: Martin Baucom. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM