Amid generally good news for the economy are slippage in retail sales growth and a rise in mortgage rates.
By Associated Press
Published May 7, 2004
WASHINGTON - The productivity of America's companies rose solidly in the opening quarter of this year, and new filings for jobless benefits plunged last week to the lowest level in more than three years, good news for the country's economic health.
But consumers retrenched a bit in April, as higher prices for gasoline and food cut into consumers' spending on clothes and other nonnecessities in April, slowing a three-month shopping spree and leaving many retailers with modest sales gains for the month. Wal-Mart Stores Inc., Limited Brands, TJX Cos. and Talbots Inc. were among the retailers reporting disappointing sales.
And mortgage giant Freddie Mac said rates on 30-year fixed-rate mortgages went up to 6.12 percent, marking the seventh consecutive weekly increase since rates hit a low for the year of 5.38 percent the week of March 18.
The Labor Department reported Thursday that productivity - the amount an employee produces for every hour on the job - rose at a 3.5 percent annual rate in the January-to-March quarter, up from a 2.5 percent pace registered in the quarter before.
The latest reading on productivity marked the best showing since the third quarter of 2003 and matched analysts' forecasts.
Efficiency gains are important to the economy's long-term vitality. They allow the economy to grow faster without igniting inflation. Companies can pay workers more without raising prices, which would eat up those wage gains. And productivity can bolster a company's profitability.
As profits improve, companies may be more willing to step up hiring and capital spending, key ingredients to making the national economy's recovery lasting.
Thus the second report from the department: New applications filed for unemployment insurance dropped by a seasonally adjusted 25,000 to 315,000, for the week ending May 1. That marked the lowest level since Oct. 28, 2000.
The layoffs picture presented by the jobless claims filings looked better than economists had expected. They had forecast claims to dip to about 335,000 last week. The government releases the employment report for April today.
"The employment picture is brightening," said Sherry Cooper, chief economist at BMO Nesbitt Burns.
Federal Reserve chairman Alan Greenspan and his colleagues, in deciding Tuesday to hold a key interest rate at a 46-year low of 1 percent, said such low rates along with productivity gains are helping to support economic activity. Greenspan said Thursday he expected productivity growth to slow a bit but gains should still be good.
"Even though the longer-term prospects for innovation and respectable productivity growth are encouraging, some near-term slowing ... seems likely," he said.
As merchants reported their sales figures Thursday, it was also clear that cooler weather hurt business.
"I feel (the price increases) are already hitting the low-end customer," said Ken Perkins, research analyst at Thomson First Call. He said eight of 10 discounters missed earnings expectations and suggested that consumers still haven't benefited from the economic recovery and remain worried about their jobs.
But Michael Niemira, chief economist at The International Council of Shopping Centers, said, "It was winter-like weather in the Northeast, but there were other factors, too."
Niemira's sales tally for 72 retailers was up 4.4 percent, below the 5 percent gain that he had expected. The International Council of Shopping Centers-UBS tally is based on what the industry calls same-store sales, or sales at stores open at least a year; they are considered the best indicator of a retailer's health.
C. Britt Beemer, chairman of America's Research Group, based in Charleston, S.C., said a recent survey showed that anywhere from 8 to 11 percent of 1,000 consumers polled were changing the way they shop, including reducing their spending and looking more for coupons, because of the increased prices.