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 CHARLOTTE, N.C., July 29 /PRNewswire/ -- Overly optimist retailers -- who ordered too much after Christmas and found their shelves bulging at the end of first quarter -- cut back their orders in the second quarter, causing many manufacturers to reduce production. The result was GDP growth in the second quarter that rose only 1.6 percent, despite a rebound in consumer spending.
 "What we saw in the second quarter was simply a good, old-fashioned inventory correction, which knocked 2 percentage points off the GDP growth," said First Union Chief Economist David Orr. "Inventories rose by only $8.2 billion, compared with a $33.5 billion surge in the first quarter.
 "The positive trend to note, however, is the growth in consumer spending, which, after adjusted for inflation, rose at a 3.8 percent annual rate, well above the 0.8 percent gain in the first quarter. The driving force behind that growth is motor vehicle sales, which soared at a 26 percent annual rate."
 Orr said that by early fall, this improvement in consumer spending should halt the slide in manufacturing employment, which dropped by 160,000 jobs in the second quarter. Employment in other private sectors grew at a healthy 3.4 percent annual rate in the second quarter, increasing by 611,000 jobs.
 It's still too early to know what impact flood damage might have on the overall economy, Orr said, but the direct and indirect costs could knock almost a full percentage point off the third quarter GDP. "Importantly, however, this should be viewed as an interruption in economic growth, not as a renewed slowdown," he said. "The pattern will appear similar to the 1988 drought. Real GDP growth fell that year from 4.3 percent in the second quarter to 2.5 percent in the third quarter, only to move up again to 3.9 percent in the fourth quarter."
 A strength in the economy that has been overlooked recently has been the progress in corporate profits, Orr noted.
 "Individual company reports, despite IBM, have been better than expected, and second quarter corporate taxes rose by 16.8 percent, confirming the profit trend of the first quarter, which rose at an 18 percent annual rate," Orr said. "While the wave of corporate restructuring is traumatic, the healthier profits are a good leading indicator that a return to outright recession is unlikely."
 Key figures for the second quarter include: residential construction, down 9.5 percent; non-residential construction, up 4.8 percent; business equipment investment, up 14.2 percent; and government purchases, unchanged. The net of exports and imports, including services, was a $70 billion deficit in the second quarter, the same as in the first quarter.
 Other key highlights of the second quarter are:
 EMPLOYMENT/UNEMPLOYMENT -- New jobs averaged 161,000 per month in the second quarter, compared with 162,000 in the first quarter and 96,700 in last year's second quarter. If the trend continued in the second half, 1993 would create 1.9 million new jobs, a 1.8 percent increase. The unemployment rate in June was 7.0 percent, the same as in March, and compares well to the 7.7 percent rate last June.
 CONSUMER BEHAVIOR -- The University of Michigan Consumer Sentiment Survey dropped to 82.8 in June from 85.9 in March. Personal income in May was 2.1 percent higher than May 1992, after adjustment for inflation. Retail sales in May were 6.7 percent higher than May 1992. Domestically produced motor vehicle sales in June, at a 12.2 million annual rate, were 9.9 percent better than June 1992.
 HOUSING -- Single-family starts averaged a 1.08 million annual rate in the second quarter, up 8.2 percent from second quarter 1992. Multi-family starts in the second quarter averaged 155,300, down 3 percent from last year's second quarter. Existing home resales in June were at a 3.69 million annual rate, up 11.1 percent from June 1992. The median price of $108,900 was 3.2 percent above June 1992N?ew-home sales in May were at a 571,000 annual rate, up 3.4 percent from last June. The media price of $128,400 was 13.6 percent higher than last May. However, last May's price of $113,000 was abnormally low, 7 percent below the average 1992 price.
 INDUSTRIAL PRODUCTION -- Second quarter factory output was up at only a 1.9 percent annual rate from the first quarter, reflecting the inventory correction noted previously. That was a sharp slowdown from the 5.5 percent rate in the first quarter and the 6.7 percent rate in the fourth quarter of 1992. While overall production in June was 3.8 percent higher than June 1992, industry groups differed widely: furniture, up 14.2 percent; office equipment, up 31.6 percent; aerospace, down 8.8 percent; textiles, up 0.9 percent; apparel, down 0.7 percent. Capacity utilization in June was 81.2 percent, compared with 81.6 percent in March and 79.5 percent last June.
 INFLATION -- The Consumer Price Index in June was 3.0 percent higher than June 1992. During the second quarter, however, prices rose at only a 2.3 percent annual rate, much lower than the 3.7 percent annual rate of the first quarter. The price of gold rose to the $390 level in June from $350 in March. Tobacco prices fell 1.6 percent in June from May.
 TRADE DEFICIT -- The monthly average deficit in April/May was $9.4 billion, compared with $8.5 billion in the first quarter and $7.2 billion in the second quarter of 1992. In May, export growth was 9.2 percent higher than May 1992, but for the first five months of 1993 is up only 4.4 percent. Imports in May were 10.3 percent above May 1992, but have risen 10.7 percent in 1993 year-to-date.
 U.S. DOLLAR -- In June, the dollar was 1.6 percent lower than in March, but 3.3 percent higher than last June when compared with a weighted average of major trading partners. Compared with the German mark, the dollar ended June at 1.70, up 5.8 percent from the end of March and up 3.7 percent from the end of last June. Compared with the Japanese yen, the dollar ended June at 107, down 6.7 percent from the end of March, and down 19.4 percent from the end of
June 1992. A

14 percent rise in the dollar compared with the British Pound over the last 12 months helped offset the decline in the yen when computing an overall change in the value of the dollar.
 OIL PRICES -- The price of West Texas Crude was $18.85 at the end of June, down 7.8 percent from the end of March and 3.1 percent below the end of June 1992 price.
 INTEREST RATES -- The prime rate was 6.0 percent in June, compared with 6.0 percent in March and 6.5 percent last June. Ninety-day Treasury Bills averaged 3.10 percent in June, compared with 2.97 percent in March and 3.70 percent last June (on a discount basis). Thirty-year Treasury Bonds averaged 6.81 percent in June, compared with 6.82 percent in March and 7.84 percent last June. Mortgage rates averaged 7.42 percent in June, compared with 7.50 percent in March and 8.51 percent last June. High-quality, long-term municipal bonds averaged 5.63 percent in June, compared with 5.85 percent in March and 6.49 percent last June.
 At June 30, 1993, Charlotte-based First Union Corporation (NYSE: FTU FTUpr) had assets of $72.0 billion and operated 1,434 banking offices in Florida, North Carolina, South Carolina, Georgia, Virginia, Tennessee, Maryland and Washington, D.C., and 232 nonbanking offices in 36 states.
 -0- 7/29/93
 /CONTACT: (Media) Sandy Deem of First Union Corporation, 704-374-2710/

CO: First Union Corporation ST: North Carolina IN: FIN SU: ECO

MM -- CH005 -- 7211 07/29/93 12:35 EDT
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Publication:PR Newswire
Date:Jul 29, 1993

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