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brw daily...

  1. rembrandt

    5,816 Posts.

    Hmmm... BRW Daily.

    Where is the US economy heading?
    By Neil Shoebridge, managing editor
    Wednesday, November 27, 2002

    After spending most of this year glumly predicting that the United States economy would experience a double-dip recession, economists are becoming more upbeat. Overnight, the US Commerce Department revised its figures for US gross domestic product (GDP) growth in the three months to September 30. On November 1, it said GDP had increased 3.1% in the September quarter. Now it is saying GDP rose 4%.

    The revised number, which is based on more detailed information than the earlier figure, was higher than economists expected: most were tipping 3.8%. The 4% rise, which compares with an anaemic 1.3% increase in the June quarter, was fuelled by strong consumer spending, the building of inventory by businesses, and solid government spending.

    There was more good news from the US overnight, with The Conference Board's latest survey of consumer confidence showing a good rise. In October, the research company's consumer confidence index fell to a nine-year low of 79.6. For November, it has increased to 84.1. Consumer confidence is a key factor in consumer spending, which accounts for two-thirds of economic activity in the US.

    The 4% rise in GDP in the September quarter is an encouraging sign, and largely kills talk of a double-dip recession. But no one is precisely sure how the US economy is performing in the current quarter, or how it will fare next year.

    The Federal Reserve's November 5 decision to cut the federal funds rate (the overnight lending rate between banks) from 1.75% to 1.25% clearly indicated that it is not optimistic about the US economic outlook. Over the past two months, forecasters at the National Association for Business Economics have cut their December quarter growth forecast from 2.7% to 1.4%.

    Solid consumer spending has stopped the US economy from sliding back into recession this year - and US consumers appear to still be in the mood to spend. The Commerce Department's revised September quarter figures show consumer spending growth of 4.1%, down from its earlier estimate of 4.2% but higher than the 1.8% increase recorded in the June quarter.

    Business spending on facilities and equipment fell 0.7% during the September quarter, the eighth consecutive quarterly decline. That is a worry. A decline in business spending was one of the key factors that pushed the US into recession last year, and economists were expecting to see some increase in the September quarter. Associated Press reported overnight: "A sustained turnaround in capital investment is a necessary ingredient for the [US] economy's full recovery."

    The rise in The Conference Board's consumer confidence index was slightly smaller than expected, but economists and US company executives are confident that consumer spending will remain robust. "The rebound in expectations suggests consumers do not expect economic conditions to become worse," says Lynn Franco, a director of The Conference Board. "This comeback suggests a brighter holiday spending season than was anticipated only a month ago."


    At the risk of sounding a tad cynical, I suggested here recently that Greenspan's latest 0.5% rate cut was more political rather than fiscal and represented his contribution towards Bush's Senate Election campaign which was centred around US economic recovery.

    Bush led the charge with a group of policies designed to translate 'money-in-the-hand' consumer confidence into votes.

    Greenspans loyalty has never been questioned but given the now almost empty gun ... the latest 0.5% must have him feeling like the virgin who gave it away at a bucks party.

    The better than expected numbers are simply organic and not the result of fiscal policy settings.

    This is only my view ... read the red stuff.

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