Data Spark Worry Over the Economy

A pileup of disappointing economic reports, including evidence that high gasoline prices are finally throttling consumer spending, is sparking concern that U.S. economic growth might be slowing.

The White House said Wednesday that energy costs had become a drag on the economy and that President Bush planned to give a major speech on energy policy next week. Also Wednesday, the Commerce Department reported that retail sales last month were surprisingly weak.

The retail news, which came on the heels of a report that the nation’s trade deficit had hit yet another record in February, triggered a sharp decline in stock prices and spurred several analysts to lower their estimates of U.S. growth.

Although most economists believe that the U.S. is generally on solid footing and that gasoline prices might be ready to fall -- the benchmark crude oil price dropped again Wednesday -- the barrage of dispiriting economic data has sparked widespread jitters.

“I’m a little more anxious,” said John Lonski, chief economist at Moody’s Investors Service in New York, who cut his growth estimate for the just-completed first quarter to an annualized rate of 3.2% from 3.8%.

Retailers have documented the damage. March sales for Gap Inc. were 1% below a year earlier. Ford Motor Co. suffered a 5% sales decline last month, with customers fleeing from gas-guzzling trucks and sport utility vehicles. And Wal-Mart Stores Inc. said foul weather dented sales of spring clothing.

Their troubles were further quantified Wednesday as the Commerce Department reported that retail sales in March had grown 0.3%, less than half of what analysts had predicted. With auto sales excluded, sales grew an anemic 0.1%.

The sales report was worrying because consumer spending accounts for two-thirds of U.S. economic activity and has been the main driver of the rebound from the 2001 recession.

The concern is that, pinched by pump prices, people are reining in spending on other things. On top of that, the bulging trade deficit shows that consumers’ money is going less to U.S. companies and more to firms overseas. Finally, job growth remains anemic, possibly making shoppers even more reluctant to buy.

A slowing economy could mean that today’s unusually slack job market and stagnant wages may be the best that can be expected this business cycle. It also could deep-six the booming housing market and further depress stock prices.

A slowdown also could force the Federal Reserve to slow or halt its gradual pace of quarter-point hikes in short-term interest rates. On the other hand, by reducing pressures on inflation and interest rates, a slower economy could help prolong the recovery.

Whatever the future holds, recent data have been “very disappointing,” said Steven Wood, chief economist at Insight Economics, who started the week estimating 4% growth for the first quarter and by Wednesday afternoon had knocked that down to 3.3%.

Wood and others still reckon the quarter’s growth will be at or just above the historic norm of 3%. Few, if any, analysts are predicting a recession anytime soon.

The government’s initial estimate of first-quarter growth will be released April 28. Several analysts said it was possible that the economy might undergo a “soft patch” similar to last spring’s, and that growth might have peaked last year.

“We’re not going to go back to the very rapid growth we had, but we’re not going to fall into recession,” said Richard Hoey, chief economist at investment firm Dreyfus Corp.

He noted that the last three years’ growth had been spurred by huge federal tax cuts and by the Fed’s cutting its benchmark short-term rate to a generational low of 1%.

“Both monetary and fiscal policy were designed to accelerate the economy,” Hoey said. “That’s kind of played out its string.”

Many economists cautioned against reacting too strongly to one bad month of economic reports.

“You get an upward path in economic growth, but it’s not straight up the hill, it is choppy,” said economist Ken Goldstein of the Conference Board research group. “We can fully expect a month or two of bad news, even though the whole trend has been on its way up.”

Goldstein and others said the March retail numbers might have been skewed by last month’s lousy weather. Record trade deficits can also be a sign of strength in that they show Americans and companies are still in a buying mood.

Mickey Levy, chief economist for Bank of America, noted that half the imports in February were purchases by business for commercial purposes, rather than purchases by consumers -- a sign that U.S. businesses are healthy and ready to expand.

Most analysts agreed that high gasoline prices were beginning to take their toll. But the increased attention to expensive energy came even as crude oil prices dropped 12.3% so far this month amid easing global demand for petroleum.

Dreyfus economist Hoey suggested that gasoline prices could be peaking. There is typically a lag in the effect of higher energy costs; the prices motorists are paying at the pump today stem from the sudden jump in petroleum prices last year. Oil prices have increased at a far slower rate this year.

Analysts were skeptical that President Bush could do much to change the oil picture in the short run. One possibility: He could persuade Saudi Arabia to increase production. The White House said Wednesday that Bush had invited Saudi Crown Prince Abdullah to his home in Crawford, Texas, for an April 25 meeting.

Another factor contributing to economic anxiety is sluggish job growth. The most recent national employment report, for March, showed job creation at less than half the rate economists had expected, moving too slowly to absorb new entrants into the labor pool.

After years of sluggish job creation, economists had bet that hiring would pick up this year. The consensus forecast was for 190,000 net jobs to be added per month. But for the first three months of the year, the average was only 159,000.

Moody’s economist Lonski said policymakers and analysts would be carefully watching April’s job report when it was released next month to see if the employment situation improved.

Among those interested observers, he said, will be the Fed, which could find itself in a bind as it tries to keep inflation down through a steady increase in interest rates. That’s riskier in a slowing economy.

“If the real economy has slowed materially, then the Fed will simply have to accept rising core inflation,” Lonski said. “Not much they can do about it, because if they try to rein it in, they risk precipitating a stall or worse.”

Times staff writers Edwin Chen in Washington and Leslie Earnest in Los Angeles contributed to this report.