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Business & Financial
Dr. Constantine G. Soras, Economics Editor

Economic Activity Continues To Be Strong

Federal spending, business investment contribute to second quarter growth

By Dr. Constantine G. Soras, Economics Editor

T he latest government reports point to still healthy growth with no signs of inflationary pressure. Real GDP grew at a robust annual rate of 5.2 percent in the second quarter, on top of a 4.8-percent first-quarter gain. A surge in federal spending added nearly 1.0 percent, while increased inventories contributed another 1.0 percent to second-quarter growth. Business fixed investment grew 19.1 percent in the second quarter after surging 21.0 percent in the first. Consumer spending slowed to 3.0 percent after rising by 7.8 percent in the first quarter, the fastest in 17 years.

The July jobless rate held steady at 4.0 percent. Private nonfarm jobs grew by 138,000 in July, sharply down from an average monthly gain of 182,000 in the first six months. Factory jobs rose by 46,000. Total nonfarm jobs declined by 108,000 as 290,000 temporary Census jobs were terminated.

The producer price index was unchanged in July after soaring 0.6 percent in June. Energy prices slipped 0.7 percent after surging 5.1-percent in June, while food prices held steady. The core index edged up 0.1 percent after falling 0.1 percent in June.

Consumer prices moved up 0.2 percent in July after rising 0.6 percent in June. Energy prices were little changed after rising 5.6 percent in June. Food prices were up 0.5 percent in July. Apparel prices fell 1.0 percent. Despite a tight labor market, the core inflation rose 0.2 percent for the fourth month in a row.

Industrial Output Continues To Grow
ndustrial output grew 0.4 percent in July, after gaining 0.2 percent in June and surging 0.6 percent in May. Unseasonably mild weather in July led to a 3.3 percent drop in utilities output. Factory output was up 0.5 percent in July, despite a 5.5 percent drop in production of motor vehicles and parts. The July operating rate edged up to 82.3 percent of capacity from 82.2 percent in June. With capacity utilization below average trend rate, there is no reason for concern for buildup in inflation.

Housing starts declined 3.3 percent to 1.512 million units at an annual rate. Single-family units declined 2.0 percent to 1.197 million units. The weakness was in the South, where starts plunged 14.3 percent. Elsewhere, starts soared 9.6 percent in the Midwest, rose 8.3 percent in the West and inched up 0.1 percent in the Northeast.

The nation’s trade deficit in goods and services ballooned to a record $30.62 billion in June from $30.31 billion in May, as oil imports grew and prices reached the highest level in nearly 10 years. U.S. exports rose 4.6 percent to $90.56 billion, led by rising foreign demand for capital goods. Meanwhile, imports jumped ahead 3.7 percent to $121.18 billion as oil imports rose by $1.6 billion.

Both business sales and inventories grew 0.9 percent in June. As a result, the June inventories-to-sales ratio was left intact at 1.32.

Textile Producers Increase Sales; Inventory-To-Sales Ratio Improves
esults for textiles and apparel were mixed. Payrolls declined 1.3 percent in July after edging up 0.1 percent in June. The volatile jobless rate jumped to 3.9 percent from 3.2 percent in June.

July’s textile output edged down 0.1 percent, following a 0.2-percent drop in June. The utilization rate was unchanged at 82.3 percent in July.

Sales by textile producers bounced up 2.0 percent in June after falling 1.1 percent in May. Inventories rose 0.4 percent. The inventory-to-sales ratio improved to 1.57 from 1.60 in May.

U.S. retail sales surged 0.7 percent in July, the largest gain in five months. Motor vehicle sales rose 1.1 percent, after gaining 0.9 percent in June. Retail sales excluding autos rose 0.6 percent in July. Sales of building materials and sales at furniture and home furnishings stores rose 1.3 percent. Department stores rang up a 1.2-percent gain. At apparel and accessory stores, sales eased 0.1 percent in July.

Producer prices of textiles and apparel advanced 0.3 percent in July. Prices soared 3.7 percent for greige fabrics, moved up 0.4 percent for carpets and 0.3 percent for processed yarns and threads, and edged up 0.1 percent for home furnishings. Prices were flat for finished fabrics and dropped 0.9 percent for synthetic fibers.

September 2000