Consumer Spending Floats Economy
Most of the latest economic reports indicate that the U.S. economy was weak, but the resilience
of consumer spending is the main reason for keeping the economy out of recession. The Federal
Reserve reduced short-term interest rates by a quarter point in June, and the round of rates cuts
is likely to come to an end with a possible quarter point rate reduction in August. The risk of a
recession, however, is still high and it could be unavoidable if consumer spending slows down from
current levels.
Non-farm payrolls declined by 114,000 jobs in June, with nearly all of the job losses coming
from manufacturing. Construction employment eased by 7,000 jobs after adding 34,000 jobs in May.
Payrolls in the private service sector, which was the engine of employment growth in the 1990s,
fell in June and were down as a whole for the second quarter.
This was the first quarterly decline since 1958, indicating persisting weakness in labor
markets in the near future. Total non-farm employment declined in the second quarter by 103,000
jobs, following a gain of 295,000 in the first quarter. The second quarter decline in total
non-farm payrolls was the first since the January-March quarter of 1992. On the bright side, a
rebound in economic activity is likely to reverse some of the employment losses realized in the
service sector, which came from temporary employment.
Inflation Still Behaving
The Producer Price Index (PPI) for finished goods declined 0.4 percent in June, as energy prices
took a 2.5-percent dive. The core rate, which excludes food and energy, edged up 0.1 percent in
June, and inflation outside the energy sector appears to be well-behaved.
Consumer prices rose 0.2 percent in June. Energy prices, down 0.9 percent in June, were still
up 8.4 percent from a year ago, while consumer prices rose 3.2 percent over the same period. The
core inflation, however, was up by a modest 2.7 percent.
Industrial output plunged 0.7 percent in June. Factory output dropped 0.8 percent, with
declines across all industries. Second-quarter industrial production fell at an annual rate of 5.8
percent.
The operating rate came down to 77.0 percent in June, the lowest level in nearly 18 years.
June housing starts rose 3.0 percent to 1.658 million units, with gains of 1.4 percent in
single-family units and 9.3 percent in multi-family dwellings.
The U.S trade deficit fell to $28.34 billion in May. Exports rose 0.9 percent to $87.73
billion. Imports fell 2.4 percent to $116.07 billion.
Business sales advanced 1.1 percent, while the inventory-to-sales ratio fell to 1.42 in May.
The relatively low inventories bode well for growth once demand picks up speed.
Textile Shipments Increase
Results for textiles and apparel were mixed. The industry’s jobless rate came down to 6.7
percent in June, down from a high of 9.6 percent, and the average weekly hours worked increased 0.7
percent. Payrolls declined 1.1 percent.
Shipments by textile producers were in the plus column, rising 0.5 percent in May after
falling 0.7 percent in April. Inventories were drawn down by 0.8 percent in May. As a result, May’s
inventory-to-sales ratio fell to 1.70 from 1.73 in April.
Textile production fell by 3.1 percent in June, on top of a 1.0-percent drop in May. In the
second quarter, textile output dropped at a 15.9-percent annual rate, following an 8.2-percent drop
in the first quarter. Meanwhile, the June operating rate for textiles edged down to 72.5 percent
from 72.6 percent in May.
Consumer spending rose 0.2 percent in June, following gains of 0.4 percent in May and 1.4
percent in April. Automotive dealers sales jumped 1.5 percent in June. Excluding autos, retail
sales were down 0.2 percent in June, following a 0.4-percent increase in May. Sales at apparel and
accessory stores eased 1.0 percent in June.
The producer price of textiles and apparel was unchanged in June. Prices jumped 1.1 percent
for greige fabrics, rose 0.4 percent for finished fabrics and were flat for home furnishings.
Prices declined 0.6 percent for carpets and for synthetic fibers and went down 0.5 percent for
processed yarns and threads.
August 2001
