U.S. businesses eliminated 101,000 jobs last month -- one out of every thousand -- the government said yesterday. It was the biggest erosion of employment in four years and the clearest sign yet that the economy is quickly cooling.
But many analysts aren't ready to predict that the country will fall into recession. Persistent consumer confidence, falling interest rates and positive prospects for exports suggest that business growth will accelerate again later this year, they said.
"I think we're going to be in a period of very sluggish growth," said Alfred G. Smith III, chief economist for NationsBank Corp. "If you want a historic parallel, you look back to the '50s or early '60s, where you had a fairly long period of growth and low inflation."
The job-loss news, which signals weaker demand for credit and less inflationary pressure, prompted another decline in interest rates yesterday.
The yield on the Treasury's main 30-year bond fell to 6.52 percent, its lowest level since February 1994. Many economists now believe the Federal Reserve may cut short-term interest rates by a half or a quarter percentage point this summer or fall, as the risk of an overheated economy and accelerating inflation recedes.
Thirty-year fixed mortgage rates "could be in the 7 percent or 6.75 percent area," said Allen Sinai, chief economist for Lehman Bros. Inc., a New York investment house. "It's going to be a good time to refinance. It's already a good time to refinance."
The Commerce Department's Index of Leading Economic Indicators, also disclosed yesterday, reinforced perceptions of a weaker economy. The index fell by 0.6 percent in April, its third consecutive monthly decline, which often signals a recession.
In a survey separate from the job-loss report, the Labor Department said the nation's unemployment rate improved slightly last month, to 5.7 percent from 5.8 percent in April. Unemployment had taken a big jump the previous month, however, rising from 5.5 percent in March.
But it was the job losses that had economists rushing yesterday to revise prognostications downward.
The data, based on business payrolls, are considered reliable and aren't generally revised as much as other indicators, said Paul W. Boltz, chief economist for T. Rowe Price Associates Inc., the Baltimore-based mutual fund company.
Analysts had expected the U.S. economy to add 175,000 jobs last month after it shed 7,000 in April.
The actual results "were obviously disappointing, and unexpected," Mr. Boltz said. "I think this changes the outlook of Fed policy. I think there's a really good chance the Fed will ease."
The last time U.S. businesses shed more than 100,000 jobs in a month was in April 1991. Defense contractor Northrop Corp. had just announced it would lay off 21,000. USAir Group Inc. said it would fire 3,585. General Motors Corp. was cutting its dividend and closing factories. Then, the economy was emerging from recession.
This time, economists believe that gross domestic product for the April-June quarter could decline slightly or grow at a rate of less than 1 percent.
Few, however, are expecting another recession -- usually defined as two consecutive quarters of GDP shrinkage. They acknowledge that the risk of recession has clearly grown. But many analysts expect that a recent buildup of goods in U.S. warehouses and storerooms will be pared down by fall, prompting factories to hire again.
The computerization of American industry has ensured that factory managers in the 1990s know far sooner than they did even 10 years ago when sales start to decline. As a result, economists said, they can fine-tune production, generating more-frequent minor slowdowns but avoiding the indigestible inventory gluts that worsened past recessions.
The May unemployment report showed that the nation lost 56,000 manufacturing jobs last month, the biggest decline in that sector in more than three years. Construction employment was down by 57,000, said the report, which is separate from the payroll count.
The next few months could set up a contest between lower interest rates, which tend to boost purchases by consumers, home buyers and businesses, and continuing layoffs, which discourage them.
NationsBank's Mr. Smith expects gross domestic product for 1995 to grow 2 percent or 2.5 percent; Mr. Sinai, 2.4 percent. In 1994, GDP grew by 4.1 percent. In the first quarter of this year, it grew at an annual rate of 2.7 percent.
Interviews with business people show the opposing forces on the economy. "Quite frankly, our business is booming," said Wanda Smith, vice president of sales and marketing with the Baltimore franchise of Uniforce Temporary Services Inc., supplier temporary help to factories,offices and stores. "Companies in the manufacturing arena seem to be hard-pressed to meet their deadlines. They're going to two or three shifts. They're working 24 hours a day. Some have expanded into 7-day workweeks."
At Bethlehem Steel Corp., on the other hand, "our business has slowed down somewhat," said David Post, senior vice president for the company, which has a large mill in Sparrows Point. "We have seen it pretty much across the board."