Economy is slowing, U.S. figures show

June 01, 1994|By New York Times News Service

WASHINGTON -- Fresh signs of economic slowing emerged yesterday as new-home sales and personal spending slumped in April after two months of hefty gains, government figures showed.

And consumer confidence slipped in May, according to a tabulation by the Conference Board, with seven of nine regions posting declines. New England and the South Atlantic were the exceptions.

The latest economic figures, which were generally weaker than expected, reflected the twin bites of higher interest rates and higher income taxes, analysts said.

Yesterday's reports followed the government's recalculation of first-quarter growth Friday, raising total output in the first quarter to an annual pace of 3 percent, up from an initial estimate of 2.6 percent but far below the 7 percent in the final three months of 1993, when a rise in the refinancing of home mortgages swelled household buying power.

The downbeat economic news, signifying that there is little danger from inflation, helped the bond market bounce off its lows yesterday, but a jump in commodity prices rekindled inflation fears and the market declined, driving interest rates higher.

"The second quarter is off to a rather poor start," said Lacy H. Hunt, chief economist at HSBC Holdings Inc. in New York. "At a time when the economy needs help from the interest-sensitive sectors to overcome tax increases, the interest-sensitive sectors are a drag."

Exhibit A, many economists contended, is housing. Sales of new one-family homes in April skidded 6.8 percent, to an annual rate of 683,000, yesterday's report by the Departments of Commerce and Housing and Urban Development showed. Sales fell 16.9 percent in the Northeast, 14.1 percent in the South and 5.7 percent in the West. However, the Midwest posted a 16.9 percent gain.

"It looks like it's primarily the interest rates," said David F. Seiders, chief economist for the National Association of Home Builders. Although the Federal Reserve began raising short-term interest rates only in February, mortgage rates have been moving up since October, and the early benefit of fence-sitters being pushed to act has now all but disappeared.

Legions of first-time buyers, some of whom would presumably have found a home to buy during the winter had it not been for the exceptionally harsh weather, now find themselves priced out of the market.

During April the stock of unsold new homes edged up less than 1 percent, to 302,000, but because of the slower selling pace this inventory would last 5.3 months, up from 4.9 months in March.

The actual number of homes sold, with no annualization or seasonal adjustment, was 66,000 last month, the same as in April 1993, the Department also found. The average sales price eased $200, to $153,900.

Nor did economists find much comfort in the Commerce Department's report showing that personal income rose four-tenths of 1 percent in April, one-third the average increase for February and March.

They noted that disposable income fell two-tenths of 1 percent, the difference largely ascribed to tax increases that many wealthier households paid in the days approaching April 15. This drain no doubt contributed to a one-tenth of 1 percent easing in personal spending, which had been a major source of the economy's recent strength.

"Today's report is further evidence that the economy's tempo has changed," commented Robert D. Barr of the U.S. Chamber of Commerce. "After the frenetic flash dancing of late last year, households are moving to a softer, slower beat."

Not all analysts, however, were disappointed by yesterday's statistics, which also included private-sector surveys of store sales and of purchasing managers in the Chicago area.

Paul Mastroddi, economist at J. P. Morgan, called the decline in home sales "quite muted," and said the bank was staying with its projection of a 6 percent annual growth rate in the economy for the current quarter, one of the most optimistic forecasts.

The report on confidence from the Conference Board, a business-sponsored research group in New York, showed its index slipping 4.5 points in May, to 87.6, on a scale designating 1985 as 100.

"Although confidence retreated in May, the current reading continues to be at a fairly reassuring level," said Fabian Linden, executive director of the organization's Consumer Research Center.

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