US economic growth begins to fray around the edges . March retail sales dip to lowest point in seven years
Storm clouds are gathering over the US economy. Weak retail sales, uneven performance by various parts of the economy, and growing pessimism among forecasters suggest that the economic skies are no longer as blue as they have been.
``There are clearly problems'' in the economy, says Bernard Markstein III of Chase Econometrics, a forecasting firm.
But the rain of recession is not about to fall, economists are quick to add. Instead they expect that over the next several months the pace of economic growth will slow but not stop.
In the near term, ``I don't think there are any indications we will have a recession,'' says Cynthia Latta, of Data Resources Inc. (DRI), another forecasting firm. ``I think what we will have is fairly flat performance,'' with inflation-adjusted growth in the 1- to 2-percent range, she says.
Sluggish economic growth tends to bring with it reduced opportunities for workers to enjoy big gains in take-home pay. Slower growth also tends to put upward pressure on the nation's unemployment rate and boost the federal deficit.
Signs of slowing economic growth and growing caution among forecasters include:
A slump in retail sales. The government reported Thursday that retail sales in March dropped 1.9 percent, after adjustment for normal seasonal factors. That was the sharpest decline in more than seven years. The figures are preliminary and subject to significant revision.
News of sagging retail sales follows on the heels of a report earlier this week that the Conference Board's consumer confidence index slipped in March.
Less bullish economic forecasts. Fifty of the nation's top economists have sharply dropped their average forecast for US economic growth in 1985, the newsletter Blue Chip Economic Indicators reported Wednesday.
The Sedona, Ariz., newsletter said the consensus forecast for inflation-adjusted economic growth in '85 is now 3.5 percent, down 0.4 percent from last month's predicted growth level. The consensus sees the rate of growth slowing as 1985 continues, and one-third of those surveyed see one or more negative quarters in 1986.
Renewed warnings from Federal Reserve Board chairman Paul A. Volcker that the United States economy is out of balance. The industrial sector has been stalled for nearly nine months, he said, while the service sector, and consumer spending over the long term, have prospered.
``How strongly and how long can growth be maintained in the American economy under these conditions?'' he asked an Export-Import Bank conference Tuesday. ``Indeed, it is a relevant question whether [corporate] investment plans -- which so far have been quite strong -- will begin to be reevaluated.''
If businesses were to reduce spending plans, growth would slow even more, most private forecasters warn.
Although analysts had expected consumer buying to slow as 1985 progressed, the size of the plunge from February was surprising, said Jeffrey Shapiro of Wharton Econometric Forecasting Associates. If the trend continues, it would mean the expansion ``is in serious trouble,'' he said.
Some of the drop may be the result of Commerce Department estimating problems, DRI economist Latta said. And auto sales could have been depressed by consumers who have decided to wait until supplies of Japanese cars increase and prices drop due to relaxed limits on Japanese auto imports.
Separately, the nation's biggest retailers reported healthy sales gains for March compared with year-ago levels. But the figures were overly optimistic, analysts said, because the latest reporting period included the Easter shopping season, while the comparable 1984 period did not.
The Commerce figures include a wider variety of retail establishments and track month-to-month changes in sales, while the department store figures measure year over year changes.