THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, January 25, 1996 TAG: 9601250449
SECTION: BUSINESS PAGE: D6 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 78 lines
Fresh signs of a faltering economy are emerging, with virtually no growth in the industrial sector and sales of new homes plunging to a seven-month low.
Analysts said government reports Wednesday underscored how weak the economy was during the fourth quarter and could help persuade Federal Reserve policy-makers to cut interest rates again next week to stimulate growth.
``The economy is still in an expansion, but it clearly is slowing down,'' said economist David Lereah of the Mortgage Bankers Association. ``I don't think we are in any trouble of recession, but it clearly is slowing and could use a boost.''
The Fed reported Wednesday that production at the nation's factories, mines and utilities inched up 0.1 percent in December after rising 0.3 percent in November. It had fallen 0.4 percent in October.
That meant production growth slowed to an 0.8 percent annual rate during the fourth quarter, just one-fourth the 3.2 percent rate during the previous three months. For the year, output rose 3.2 percent, little more than half the 5.9 percent growth in 1994.
At the same time, the Commerce Department reported that sales of new single-family homes fell for the fourth straight month in November, down 2.1 percent to a 649,000 seasonally adjusted annual rate.
The rate was the lowest since 607,000 last April. Sales dropped in all regions except the South. In the Northeast, they plunged to a 13-year low.
The reports, which had been delayed by the partial government shutdown, were among the last major economic data scheduled before the Federal Open Market Committee begins a two-day meeting next Tuesday.
Many analysts believe it will cut short-term rates by a quarter percentage point in an attempt to energize the economy. It last trimmed the federal funds rate in December, to 5.5 percent from 5.75 percent, the second cut of 1995. The rate is what banks charge each other for overnight loans.
In its report Wednesday, the central bank said the industrial sector was operating at 82.8 percent of capacity in December, down from 83 percent a month earlier and the lowest since 82.6 percent in January 1994.
Analysts monitor the capacity rate for signs of future inflation. Many believe a rate over 85 percent could lead to production bottlenecks, shortages and rising prices.
Although the report said overall production edged up 0.1 percent in December, it showed the anemic growth was mostly because of increased output of cars and light trucks and the end of the Boeing aircraft strike.
Excluding cars and trucks, output was unchanged.
Manufacturing output rose 0.1 percent, including a 0.3 percent gain in durable goods such as cars and appliances. But nondurable goods output fell 0.2 percent, the second consecutive decline.
Mining output also fell for a second time in a row, down 0.2 percent. Production of utilities, however, advanced 0.4 percent, although that was slower than the 1.5 percent gain a month earlier.
The Commerce Department report showed new home sales have not improved since they rose 8 percent last July, to a 781,000 annual rate. That helped push sales for the first 11 months of the year 1.7 percent below the same period of 1994.
Existing home sales fell 1.7 percent in November, and single-family housing starts were flat. Mortgage applications also have leveled off.
The seasonally adjusted estimate of new houses for sale at the end of November was 375,000, representing a supply of 7.2 months at the current sales rate. It was the largest backlog of unsold houses since a similar rate in June 1989 and a possible restraint to any new construction.
The median price of a new home was $132,400, down from $137,000 in October but up from $129,900 a year earlier.
Sales rose 6.3 percent in the South, to a 321,000 annual rate. But they plunged 18.2 percent in the Northeast, to 36,000, the lowest since June 1982. Sales fell 10 percent in the West, to 171,000; and 4.7 percent in the Midwest, to 121,000.
KEYWORDS: ECONOMY REPORT HOME SALES PRODUCTION
by CNB