Slowdown Expected To Squeeze Incomes; Most Economists See Little Chance of Severe Recession
After an often vigorous 6 1/2-year expansion that put 17.5 million more Americans to work, the U.S. economy appears to be entering an extended period of slow growth that will squeeze income gains for many Americans.</br></br>The onset of this slowdown has been signaled in several ways recently. Consumer spending for new cars and other expensive, long-lasting goods is down substantially from last year's levels. Fewer new homes are being constructed and sold. New orders for a wide range of goods, an indicator of future production and employment levels, slumped in May.</br></br>On Friday, the Labor Department reported that unemployment rose last month to 5.3 percent from 5.2 percent in May. The number of new jobs now being created is down from the pace of 1988.</br></br>Mounting evidence of the slowdown persuaded the Federal Reserve to ease its grip on credit again last week and most banks are expected to drop their prime lending rate this week, from 11 percent to 10.5 percent.</br></br>By this careful steering, the Fed continues to seek a "soft landing" in which credit remains tight enough and economic growth slow enough to keep inflation under control without forcing a sharp downward slide into a recession.