NCPA - National Center for Policy Analysis

Slowdown Yes, Recession No

November 10, 1998

A lively stock market and third quarter growth that exceeded expectations have lessened the chance of a recession. But observers point to other factors that could still slow down the U.S. economy.

First, the good news:

  • The Fed's two recent interest rate cuts may have eased economic conditions and reassured the financial markets.
  • In the third quarter, the economy grew at a faster-than- expected 3.3 percent annual pace.
  • Jobless rates haven't been this low since the mid-1960s.
  • In October, earnings were up 3.6 percent from a year ago.

On the other hand:

  • Much of the increased growth was the result of an unwanted buildup in inventories.
  • Take away the inventory stockpile, and underlying growth has slowed by almost 50 percent since the first half of the year.
  • While joblessness is at a low, new jobs aren't being created, either; the factory sector has lost 198,000 jobs just since July.
  • The number of job cut announcements was up to 91,531 in October -- a 25 percent increase over the month before.

While consumer confidence is still high -- as shown by the 9.8 percent increase in car and light-truck sales for October, fresh capital for business expansion is getting harder to come by. Profit growth has also started to slow. After expanding 9 percent last year, experts predict they will barely post a 1 percent gain this year.

Source: Anna Bray Duff, "Recession Fears Ease for Now," Investor's Business Daily, November 10, 1998.


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