9311djl (01/21/83)
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. 14 January 21, 1983
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_H_E_A_D_L_I_N_E_S
o+ The Labor Department reported this morning that the Consumer
Price Index (CPI) rose only at a 3.9% rate for all 1982, half of
1981's 8.9%, and the lowest in the past decade. December's CPI
fell 0.3% the second such drop in 1982 (previous time: March
1982) as favorable prices for gasoline, housing, and mortgages
led the decline. Economists expect the CPI to rise moderately
through the first half of 1983 (around 5%). Food prices will
rise 3 to 6% in 1983 as agricultural harvests increase and
consumer demand slowly recovers.
o+ Real GNP for the fourth quarter of 1982 fell 2.5% resulting in a
sharp decline of 1.8%, in real terms, for all 1982. The 1982
nosedive was the biggest one-year decline since the 14.7% fall in
1946 when the economy sputtered after being revved up during
World War II. The factors leading to the 1.8% tumble were: a
decrease in inventory levels by $17.5 billion; weak export sales
and strong import buying; and low production caused by the
combination of high inventories and low demand for products.
Although real GNP for 1982 was at $1.476 trillion, real GNP fared
better in 1980 falling only 0.4% and rising in 1981 by 1.9%.
Unadjusted GNP was up 4.1% because of inflation to $3.058
trillion. The GNP price deflator, a more broad-based measure of
price increases than either the CPI or the Producer Price Index
(PPI), was computed to be 6%, down from 1981's figure 0f 9.4%.
o+ The U.S manufacturing operating rate fell to 67.3% of capacity in
December, the lowest rate on record. The average for 1982 was
69.8% well below the previous record low of 72.9% in 1975,
another recessionary year. While 1981's rate was 78.5% and with
1982 rate tumbling almost 11 percentage points, it is not
surprising that the unemployment rate has soared to 10.8%. The
operating rate has now fallen 15 times in the past 17 months.
Some specifics: the iron and steel industries operated at 38.3%
while the auto industry operated at 52.3%.
o+ Personal income rose in 1982 by a modest 6.4%, 2.5% better than
the rate of inflation. So, on average, Americans increased their
real incomes. But, because of tax bracket creep, take home pay
increased only 1.1% compared with the 2.5% increase in 1981 and
the minuscule 0.2% increase in 1980. Personal income was at
$2.57 trillion for 1982. December's level rose only 0.6% because
of increased layoffs. Expanded transfer payments for programs
like unemployment insurance kept the income figure from falling.
o+ U.S. automakers reported that cumulative car production for 1983
is up 45.9% from the same period a year ago. Production step ups
are expected for the next few weeks as demand for 1983 autos is
high because of incentives provided by the new low financing
rates sellers are pushing. The number of U.S. automakers on
indefinite layoff fell for the second straight week. Continued
growth in employment in the auto industry will depend on
continued strength in consumer auto demand.
o+ The Labor Department continued its announcements of gloomy labor
news by announcing that 6.28 million Americans were collecting
unemployment benefits as of January 1., the highest level since
the program was conceived in 1935. The record number is due
mainly to the emergency legislation passed by Congress last
August allowing more benefits to be paid. 11% of the benefits
were expanded by the emergency bill.
Furthermore, new claims for unemployment benefits rose for the
second consecutive week for the week ending January 8 to 568,000.
But the fact remains that nearly 12 million Americans are idle.
Continued falls in employment will exacerbate economic recession.
But, more depressing is the belief that the economy will not
bounce back strongly assuring a high unemployment rate for a long
time. We need measures to strengthen business employment. Short
term jobs financed by the federal government will not do.
_D_o _Y_o_u _T_h_i_n_k _I_n_f_l_a_t_i_o_n _i_s _D_e_a_d?
Despite the optimistic inflation news heard today, there is still
concern that the onerous inflation rates of the late 70's may reappear
in a few years. Analysts foresee a comeback of inflation because:
- The money supply is growing much too rapidly (M1 grew 11% in the
last half of 1982)
- The dollar has been slipping relative to major foreign currencies
as U.S. interest rates have been falling. This means import
prices will rise allowing domestic producers a cushion to boost
their own prices and still be competitive.
- The huge federal budget deficit will keep borrowing costs high
- Wage demands from big labor unions may accelerate when the
economy begins to recover.
What needs to be done to limit expectations of inflation?
1. Decrease budget deficits to stifle the volatility of U.S.
interest rates.
2. Maintain a steady increase in the monetary aggregates like M1
and M2.
3. Assure long term saving and investment for future private
capital spending.