Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, May 17, 1995 TAG: 9505170060
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Analysts attributed the lackluster performance in both key economic sectors to high interest rates that had produced a glut of unsold cars and houses. But they noted that rates have fallen recently and said both sectors apparently are stabilizing.
``The economy is not falling,'' said economist Eugene Sherman of M.A. Shapiro & Co., a Wall Street investment adviser. ``It's just more sluggish than anticipated.''
Economist Joseph Blalock of America's Community Bankers agreed but added, ``If you're worried about inflation, this slowing is likely to be a good thing.''
The Federal Reserve has sought a slower economy for more than a year as it engineered seven short-term interest rate increases to dampen any inflationary explosion.
Fed Chairman Alan Greenspan emphasized again Tuesday that stable prices are necessary for consumers to feel confident enough to make long-term investments such as cars and homes.
``They need to feel comfortable that they will have the income to make their monthly mortgage payments,'' he told the National Association of Realtors.
Although the Commerce Department reported Tuesday that construction of new single-family homes and apartments rose 0.4 percent in April, the advance was due to a 2.4 percent increase in multi-family housing. Single-family homes - 80 percent of starts - slipped 0.1 percent, the fourth straight decline.
Overall, housing starts totaled 1.24 million at a seasonally adjusted annual rate, up from 1.23 million in March, which had been the lowest since 1.07 million in March 1993.
In a separate report Tuesday, the Fed said production at the nation's factories, mines and utilities fell 0.4 percent in April, making the first back-to-back declines since December 1991 and January 1992. Output had fallen 0.3 percent in March.
Factory output dropped 0.5 percent, including a 0.4 percent fall in auto production.
``More than half the decline in industrial production took place in the auto sector, where inventories are being sold off before the next model year arrives,'' said Jerry Jasinowski, president of the National Association of Manufacturers.
``But what is just as important is that production declined across the board,'' he added. ``This traces back to the rise in interest rates, which slowed consumer demand. ... Nevertheless, since this is just an inventory correction, it will not be long-lived.''
The Fed report also showed that the industrial operating rate fell in April for the third straight month, down 0.6 percent to 84.1 percent of capacity, lowest since July.
Economists contend that as production approaches full capacity, bottlenecks develop and inflationary pressures build.
by CNB