[PEN-L:427] BLS Daily Report

[Richardson_D]

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BLS DAILY REPORT, TUESDAY, OCTOBER 6, 1998

The National Association of Business Economists forecasting panel
reiterates its May prediction that the economy will grow at a 2.2
percent rate in 1999.  Of the 36 professional forecasters who make up
the panel, only six predict that the Asian crisis will reduce U.S.
growth next year by more than one percentage point.  Seven predict that
the Asian crisis will boost U.S. growth. ...  (Daily Labor Report, page
A-7).  

Business in the non-manufacturing sector of the U.S. economy continued
to grow during September, according to the latest report from the
National Association of Purchasing Managers.  Among features of the NAPM
report are:  The non-manufacturing business activity index registered an
increased rate of growth, indicating continued strength in the sector,
and new orders grew at a higher rate in September than in August.  The
backlog of orders decreased.  Employment grew at the same rate as in
August, and supplier deliveries decelerated at a slower rate.
Inventories increased slightly, and use of imports grew more slowly in
September than in August.  Prices paid by non-manufacturing
organizations for materials and services decreased at a faster rate in
September. ... The non-manufacturing sector includes a very wide range
of activities, such as retail and wholesale trade, real estate, business
services, transportation, and communications. ... The report is based on
data compiled from monthly replies to questions to more than 370
purchasing executives in over 62 industries. ... (Daily Labor Report,
page A-7)_____Business activity at non-manufacturing companies grew in
September at a faster pace than in August, posting the first increase in
four months.  NAPM's index of non-manufacturing business activity rose
to 59.0 in September after dropping to 52.0 in August.  A reading above
50 is intended to mean business is expanding, while a reading below 50
means business is contracting (Washington Post, page C1).

Deflation has two faces, and one of them isn't pretty, says Louis
Uchitelle writing in the "Economic View" feature of The New York Times
(Oct. 4, page BU5). ... Deflation means a general decline in prices. ...
Deflation is not yet happening in the United States, but prices are
dropping for a growing number of goods. ... The CPI index for goods
alone rose by only two-tenths of a percent in the 12 months ended in
August, the smallest gain in nearly 40 years. ... Deflation,
unfortunately, is not limited to falling prices.  It can mean falling
wages, too, and it becomes painful when incomes fall faster than prices.
In fact, there is a good deflation and a bad deflation, and something in
between, says Uchitelle.  Good deflation was the American experience
from 1870 until 1896.  Prices fell almost every year, but wages and
profits, instead of being squeezed out, climbed.  The reason was rapidly
rising productivity. ... The Depression featured the classic bad
deflation.  A stock market crash, unexpected bankruptcies, defaults,
bank runs, and bank failures dried up the credit on which any economy
depends.  With prices and wages falling rapidly, people and companies
found themselves without enough income to repay debts.  That produced
more defaults, and even harder times.  Something like that is happening
in Asia today, and could spread to the United States.  But governments
today have the policy tools and knowledge to prevent this.  What's more,
they know how to get a stagnant economy moving again. ...  

DUE OUT TOMORROW:  Extended Mass Layoffs in the Second Quarter of 1998


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