Economic reports point to recession

By Martin Crutsinger
Associated Press

WASHINGTON — Home sales and orders to factories for big-ticket items plunged in September, and the number of Americans drawing unemployment benefits now stands at an 18-year-high — the strongest evidence to date that the country has entered a recession.

"The bad news just keeps on coming," said Melani Jani, an economist at Salomon Smith Barney in New York. "The economy was already weak before Sept. 11, and these figures show the deterioration has become much more intense."

The Commerce Department reported yesterday that orders to factories for big-ticket durable goods fell for a fourth consecutive month in September, a decline of 8.5 percent that was six times larger than economists expected. It pushed orders for durable goods down to $165.4 billion, the lowest level since August 1996.

Sales of existing homes, one of the economy's few bright spots, fell by 11.7 percent, the biggest one-month drop in six years, the National Association of Realtors reported. The association said the shock of the terrorist attacks caused housing sales, along with a lot of other economic activity, to come to a standstill.

The Labor Department said the number of newly laid-off workers filing for unemployment benefits rose to 504,000 last week, a level usually associated with recessions, while the total number of unemployed collecting benefits rose to an 18-year-high of 3.65 million people, 66 percent above the level of a year ago.

"These numbers leave no doubt that we are in a recession," said Michael Evans, chief economist at American Economics Group, a Washington-based consulting firm.

A final report showed that Americans' wages and benefits rose by 4.1 percent in the 12 months ending in September, compared to a 4.3 percent increase for the previous 12 months. Analysts said that figure will decline even more sharply in coming months as rising layoffs further depress employees' bargaining power.

A recession is traditionally defined as two consecutive quarters of declining economic output. The gross domestic product grew at a barely discernible annual rate of 0.3 percent in the April-June quarter.

Many analysts believe when the GDP figure for July-September quarter is released Wednesday, it will show GDP falling at a rate of around 1 percent with the decline expected to accelerate to a 2 percent drop in the current quarter.

While economists had been expecting a rebound early next year, many said they are revising those forecasts down, in part because of the new uncertainties raised by threats of anthrax and other bioterror attacks.

"Clearly, anything that hits consumer confidence is bad for the economy. The real question is how bad will it be," said David Wyss, chief economist at Standard & Poor's Co. in New York. "With all of the developments on the terrorist front, our crystal balls have gotten cracked."

Wyss said he still believes economic activity will begin to rebound in the first quarter, helped by an aggressive credit easing on the part of the Federal Reserve and sizable tax cuts and government spending increases. The Fed is expected to cut rates for a 10th time this year at its next meeting, Nov. 6.

But Evans said all of this stimulus would likely be overwhelmed for a while by cutbacks in consumer spending, triggered by the higher layoffs, and further drops in business investment.

The report on durable goods orders showed that business investment, which has been plunging for most of this year, continued on a downward spiral in September with new orders for non-defense capital goods dropping by 11.4 percent.

Virtually all major categories of durable goods showed declines except military orders, which rose by 4.6 percent.

The fall in existing home sales was led by a 14.5 percent fall in sales in the Northeast. But all regions suffered declines, with sales in the West dropping 12.2 percent, the South down 11.5 percent and sales off 9.2 percent in the Midwest.

Recent surveys show, however, that sales activity has rebounded somewhat in October, said David Lereah, chief economist for the Realtors.

The 4.1 percent rise in the government's Employment Cost Index over the past 12 months reflected a 3.6 percent increase in wages and salaries and a 5.1 percent rise in benefits. Analysts said that benefit costs are being driven higher by surging health insurance premiums.

In just the third quarter, compensation costs were up 1 percent, compared to a 0.9 percent rise in the second quarter.