9311djl (02/25/83)
W E E K L Y B U S I N E S S S U M M A R Y
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Vol. I No. 19 February 25, 1983
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HEADLINES
o+ The Bureau of Labor Statistics reported today that the Consumer
Price Index (CPI) rose a scant 0.2% in the month of January
translating to a 2.1% annual inflation rate. This figure is a
newly calculated CPI using current residential rents as a measure
of residential shelter costs. The Bureau of Labor Statistics
believes that using rents will more effectively measure the true
increase in the cost of living. Had the old calculation been
used, employing mortgage and housing prices, the CPI would have
been flat (no change) during January. Continued good news on
inflation will potentially boost consumer confidence and induce
the badly needed consumer spending boom.
o+ Three major banks lowered their prime lending rate today to 10.5%
from 11.0%. The three banks are: Chemical of NY, First Chicago,
and Mellon of Pittsburgh. This encouraging news may cause Wall
Street to have another record breaking period ahead.
o+ The Commerce Department has revised its estimates of Gross
National Product (GNP) for 1982. The new figures show that real
GNP declined at an annual rate of 1.9% in the fourth quarter of
1982 rather than the previously estimated 2.5% drop. The reasons
for the updated figures were that foreign trade fared better than
initially estimated (net exports were $2.2 billion higher because
imports were lower) and the estimate of inflation for the fourth
quarter was lowered to 3.7% from 4.3%. Because inflation was
lower than originally thought, less of the value of the quarter's
production was attributed to price increases and more to
increases in real output.
Totals for 1982:
Real GNP: $1.476 trillion (in 1972 $)
down 1.8% from 1981, the biggest
decline since 1946.
Nominal GNP: $3.058 trillion up 4.1% from 1981.
GNP Price Deflator: 6%
o+ Factory orders for durable goods rose a hefty 4.5% in January
after an 8.5% increase in December. Durable goods are those
goods that generally last three or more years and are often big,
expensive items bought on credit, e.g. refrigerators, tv's, and
automobiles. Consistent surges in factory orders only portends
an imminent economic recovery.
o+ Again, sales of new cars manufactured in the U.S. fell a
substantial 12.7% during mid-February from the same period a year
ago. Being the second consecutive drop in the selling rate,
mid-February's level of sales was the worst for this period of
the year since 1961.
o+ Saudi Arabia and five oil-producing allies have agreed to cut
crude petroleum prices perhaps up to $7 a barrel. This reduction
could lower American retail gasoline rices by 10%. Some of the
fall in crude prices, however, will be siphoned by dealers to
bolster profits. Nevertheless, falling oil prices will breed
favorable conditions for a much stronger economic recovery than
presently anticipated barring any failure in the banking
industry.
o+ Initial claims for unemployment benefits dropped to 472,000 (from
510,000 the previous week) for the week ending February 12. But,
the level remained high by historical standards. The high volume
of claims reinforces economists' beliefs that unemployment will
not vanish quickly. Unemployment figures for February will be
announced next Friday. The WBS estimates a slight increase from
the 10.4% of January to 10.5-10.6%.
A Surprise Tax Cut
Taxpayers may find that they will soon have some unexpected cash in
their pockets. Is this from next July's tax cut? No, it's from last
year's tax cut. Economists at Goldman, Sachs, & Co. have concluded
that because income tax rates are lower, consumers will be receiving
larger tax refunds and making smaller tax payments. The economists
predict that a $22-26 billion "surprise tax cut" will occur. Several
factors for the windfall are:
o+ Withholding rates for some taxpayers were not fully adjusted to
reflect last July's tax cut.
o+ Taxpayers will save for not having to pay taxes on All-Savers
interest or on IRA contributions.
o+ Some unemployed workers, whose benefits are mostly tax-free, had
overwithholding of their taxes when they were working.
This "tax cut" will add a stimulative punch to the economy in the next
three months and may boost consumer spending skyward.