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Analysis: Good economic news something of a mirage
Saturday May 10, 11:52 am ET
By Jeannine Aversa, AP Economics Writer
Analysis: Some good economic news is a mirage masking weakness in
national economy
WA****NGTON (AP) -- The unemployment rate drops. Productivity grows.
The trade deficit shrinks. Sounds great, right? Not so fast.
Borrowing radio broadcaster Paul Harvey's signature saying: let's hear
the rest of the story.
Some seemingly good economic numbers can be something of a mirage
masking weaknesses in the national economy.
Let's take the unemployment rate, which dipped to 5 percent in April,
from 5.1 percent in March. A closer look reveals that the decline in
unemployment is not as good as it looks at first blush. The drop came
as the number of people holding part-time jobs for economic reasons
swelled to 5.2 million in April, up sharply from 4.4 million a year
earlier.
The dip in the unemployment rate also occurred as employers cut jobs
for the fourth month in a row, pu****ng up total losses beyond the
quarter-million mark -- to 260,000. Wages barely grew and workers'
hours were trimmed. Taken altogether, these things point to a tepid
picture of employment conditions nationwide.
Federal Reserve Chairman Ben Bernanke and his colleagues recently used
the word "softened" to describe the labor situation.
U.S. productivity -- an im****tant ingredient to the country's long-
term vitality -- grew solidly in the first three months of this year.
That efficiency gain, however, came at the expense of workers.
"Productivity gains were due primarily to declines in hours worked,"
the Labor Department's Bureau of Labor Statistics explained. Those
hours fell at a 1.8 percent pace, the biggest drop in five years.
Employers also shed workers in the first quarter. Thus, companies were
able to produce more with fewer workers, and that boosted
productivity, the amount an employee produces for every hour of work.
"American workers, you just got to love them," said Joel Naroff,
president of Naroff Economic Advisers. "They just seem to produce more
and more and more. That was the case in the first quarter of the year
as fewer workers working fewer hours managed to produce more," he
said.
Still, healthy efficiency gains are im****tant for the economy because
they can blunt inflation; that's good for companies' profits and good
for those earning paychecks.
Let's take a closer look at the nation's trade deficit. It shrank to
$58.2 billion in March as the United States' appetite for im****ts fell
faster than foreign demand for U.S. ex****ts.
A drop in the United States' foreign oil bill -- reflecting less oil
being im****ted -- played an im****tant factor in the decline in
im****ts. However, demand for foreign-made autos, furniture, toys,
clothing and other goods also waned, underscoring the strains faced by
U.S. consumers.
Consumers have turned cautious, battered by housing and credit
problems and high food and energy prices. Many -- watching their
single-biggest assets, their home, sink in value are less inclined to
spend. High energy and food prices are leaving people with less cash
to buy other things. And, harder-to-get credit has made financing big-
ticket goods, like cars, appliances and of course, homes, more
difficult.
In the first quarter of this year, consumer spending increased at the
slowest pace -- a mere 1 percent growth rate -- since the last
recession in 2001. Consumer spending accounts for the single-biggest
chunk of U.S. economic activity. Thus, how consumers behave shapes
whether the country will survive the blows of the housing, credit and
financial debacles or fall victim to them as many fear.
U.S. ex****ts, meanwhile, have been helped by the falling value of the
U.S. dollar. That makes U.S.-made goods and services less expensive to
foreign buyers. But that weaker dollar also makes im****ted goods more
expensive in the United States. That contributes to the surging prices
for oil, food and other commodities.
And, while falling interest rates in the United States help ordinary
people and businesses, it also contributes to the dollar's decline.
Add to that the perception of economic weakness in the United States
and the U.S. dollar has fallen to record lows compared with the euro.
Still, ex****t growth played an im****tant role in keeping the economy
growing -- albeit slowly -- during the first quarter. "Ex****ts are
booming and helped keep GDP in the black," said Commerce Secretary
Carlos Gutierrez. Gross domestic product, or GDP, measures the value
of all goods and services produced in the United States. It grew by a
feeble 0.6 percent growth rate from January through March.
When ex****ts and business' inventories are removed and im****ts are
added in, economic activity actually contracted at a 0.4 percent pace
in the first quarter. That figure shows that U.S. consumers have a
dwindling appetite to spend.
Many economists -- and members of the public -- believe the economy is
in a recession. Bernanke has said a recession is possible, while
President Bush acknowledges the country is going through tough times.
Both men hope the Fed's seven-month rate-cutting campaign and the
government's stimulus package of rebates and tax breaks will lift the
country out of its slump later this year.
Meanwhile, the mirage continues.
In another anomaly, consumer borrowing rose in March at the fastest
clip in four months. It sounded like people were back in a buying
groove, with credit card charges especially heavy. But building up the
credit charge balances is another form of debt. Economists said people
don't have a choice because their paychecks aren't going as far and
they can't tap into their homes, as they did during the housing boom,
for ready sources of cash.
So some silver linings are not so silver.
When you look closely, "you do see some dark economic clouds in the
silver linings," said Mark Zandi, chief economist at Moody's
Economy.com. "The darkness is much greater than any sun****ne."
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