Evidence of slower economic growth is piling up. Production at U.S. factories, mines and utilities barely rose in May, and a barometer of inflationary pressure was lower for the second straight month.
There was also reasonably good news about the productivity of American businesses. And, as expected, inventories rose slightly in April while sales slipped.The Federal Reserve said industrial production posted its 12th straight increase in May with output of business equipment and construction supplies barely offsetting the third consecutive decline in car and truck production.
Production rose a modest 0.2 percent last month on top of a 0.1 percent gain in April, which was revised downward from an earlier 0.3 percent estimate. The size of the recent increases is down sharply from the last three months of 1993, when the economy expanded more rapidly than it had in a decade.
"I don't think we're on the verge of economic collapse," said economist Sandra Shaber of the WEFA Group, a forecasting service in Bala Cynwyd, Pa. "Put all of it together, we'll have some noninflationary growth. It's wonderful."
The Fed said the industrial operating rate - a barometer of inflationary pressure - fell in May for the second straight month.
The central bank said production facilities operated at 83.5 percent of capacity in May, down a-tenth of a percentage point from April and two-tenths from March.
The operating rate peaked at 83.9 percent in June 1989. If it rises too high, it could mean production limits are being reached - leading to shortages that spur price and wage increases.
Many analysts now predict the Federal Reserve, which boosted interest rates four times from February to May, will impose no further tightening of credit before August at the earliest.
"The news is noninflationary today," said economist Sung Won Sohn of Norwest Corp. in Minneapolis. `I'm not sure about down the road. Sooner or later we'll bump into capacity restraints."
Gene Sherman with M.A. Schapiro & Co. in New York City said the decline in both production and operating capacity for auto manufacturers is concealing stronger growth in other sectors.
"So far, so good," he said. "But, in my view. we're at the threshold of rising prices."
In another report Wednesday, the Labor Department said nonfarm productivity rose 1.3 percent at an annual rate in the first three months of this year. The figure, defined as output per number of hours worked, is nearly three times the 0.5 percent rate earlier reported. But it still lagged behind the fourth quarter of last year, when productivity shot up at a 6.1 percent rate.
Also, the Commerce Department said still-lean business inventories rose 0.2 percent in April after falling in March for the first time in three months. The department also said business sales fell 0.8 percent in April, the largest drop since they plunged 1.5 percent in December 1991.
The Fed said car and truck assemblies peaked in February at an annual rate of 13.4 million units and output decreased to an 11.5-million-unit pace in May. The drop in auto production from near capacity has pulled down the overall index about 0.2 percent per month since March, the central bank said.
The 5.8 percent drop in cars and trucks was more than offset by gains in production of business equipment, up 0.9 percent in May on top of a 0.5 percent climb in April, and construction supplies, which rose 0.9 percent in May following a 1.7 percent surge as spring arrived. Production of computers and office equipment surged 3.1 percent.
But the output of consumer goods slipped 0.5 percent last month.