Business Notes the Economy

The rundown U.S. economy sent discouraging new signals last week that it cannot shake the blahs. In one major sign of weakness, a virtual Who's Who of blue-chip companies reported huge losses or falling profits for the third quarter of this year. Citicorp lost $885 million largely because of red ink at its Quotron stock-reporting service and costs stemming from the layoff of 5,000 workers earlier this year. The largest U.S. banking firm said it would suspend its dividend and dismiss several thousand more workers. Among manufacturers, IBM said slumping sales caused its profits to plunge 85% in the recent quarter.

The prevailing profit drought "holds down capital spending and is behind a lot of layoffs," says Lawrence Chimerine, senior adviser to the forecasting firm DRI-McGraw Hill. Concurs Allen Sinai, chief economist for the Boston Co. Economic Advisers: "Pressure on profits means cost cutting will remain part of the vise that is squeezing consumers."

The latest economic reports from Washington gave little evidence that the % squeeze would end anytime soon. The Commerce Department said the Consumer Price Index surged at an annual rate of nearly 5% in September, dampening expectations that the Federal Reserve Board would ease interest rates further. At the same time, the economy's few bright spots were barely flickering. Washington said industrial production rose just 0.1% in September, while housing starts dropped 2.2%, the first decline in six months.

The weak economy was of growing concern to the White House last week as President Bush met with Republican congressional leaders to craft a program to stimulate business activity. The Administration is expected to call once again for a cut in the capital-gains tax, among other measures.