Germany's economy – A little stimulus

Even in recession, Germany is the last of the small spenders

CHINA is to spend $586 billion to prop up growth. Japan plans $275 billion-worth of economic stimulus. America’s government is expected to pump out still more cash. Into this fiscal pot Germany has tossed a few coins: it has unfurled an “umbrella for jobs”, 15 small-bore measures that include €12 billion ($15 billion) of fresh spending over two years, or roughly 0.25% of GDP. This will trigger €50 billion of investment, promised Chancellor Angela Merkel. But pressure is on the world’s third-largest economy, which sank deeply into recession in the third quarter, to do more.

The German budget was close to balance in 2007 and may be in surplus this year, a claim few other rich countries can make (see chart). The world’s biggest exporter of goods boasts a current-account surplus that is expected to reach 7% of GDP this year. Rather than spend, Germans have been paying higher taxes and exercising wage restraint to make their firms more competitive: consumption has been flat. This suggests that Germany should be among the first to seize the Keynesian moment that the financial crisis has brought about. Its trading partners certainly think so. Germany “has the possibility to use tax policy to support demand,” says the European Union’s economics commissioner, Joaquín Almunia.

So what holds it back? Spending packages enacted to fight slumps in the 1970s produced little but new debt. Since then the prevailing wisdom has been that they do not work. Governments that boost spending in bad times rarely pare it back later. When people see that debts, and thus taxes, are heading up they tend to save more rather than spend, says Joachim Scheide of the Kiel Institute for the World Economy (this phenomenon is known as Ricardian equivalence). The grand coalition of Ms Merkel’s Christian Democratic Union (CDU) and the Social Democratic Party (SPD) was set on balancing the federal budget by 2011. The target will not be met, the government admits, but that is no reason to splurge. Even the term economic package is taboo. The umbrella “is not a stimulus package of the old style,” insists the finance minister, Peer Steinbrück.

For the complete article see the link below:

Link:
http://www.economist.com/world/europe/displaystory.cfm?story_id=12607268&fsrc=rss

Comment:
Whereas all other countries or economies spend tremendous amounts of money to get out of the recession, Germany has been more than moderate, which is very fascinating. One of the reasons is probably that Germany has a way better economic foundation, such as levying huge amounts of taxes, than most other countries do and additionally the fact that they are the world's biggest exporter. So, with these prerequisites Germany needs a little stimulus to boost the economy than their counterparts need. If Germany's plan works out, will be very interesting to follow.

Oezguer (Oscar).

Britain's recession - Job losses – When it gets personal

Job losses The downturn is now gripping the labour market

FOR many Britons, especially workers and those looking for jobs, the past few days were when it all sank in. Falling GDP is one thing, a worry to be sure but still abstract. Lay-offs are another, evoking the insecurity of the recession in the early 1990s.

Scarcely a day goes past now without an announcement of job cuts. On November 13th BT, a telecoms company that has cut 4,000 jobs since April, said it planned to get rid of a further 6,000 by next spring; most of the losses, which include workers employed by outside contractors as well as the firm’s own staff, will be in Britain. On November 17th Citigroup outlined big job losses around the world; among these will be some of the American bank’s 11,000 employees in Britain. The following day Wolseley, a building-materials firm, said that it would cut around 2,000 British jobs.

Already, unemployment has started a menacing climb. The jobless rate has risen from 5.2% in the first three months of 2008 to 5.8% in the third quarter. That has taken the number of people out of work and looking for jobs to over 1.8m, the highest since 1997. The narrower measure of people claiming unemployment benefit (which excludes in particular many jobless women because their partners’ earnings make them ineligible for it) is poised to break through the politically sensitive 1m mark. The three months to October saw a rise of 108,500, the biggest such increase since the end of 1992.

It will get a lot worse before it gets better. A forecast from the Confederation of British Industry (CBI) this week portrays the pain that lies ahead. The employers’ group thinks the claimant count will rise to 1.9m in 2010, and the wider measure of unemployment to 2.9m. That will push the jobless rate to 9%, worryingly close to the previous peak of 10.7% in 1993 (see chart).

All this will put a chill in the air after 15 years in which workers have generally not had to worry about losing their jobs. Indeed, employment grew steadily, on an annual basis, from a low of 25.3m in 1993 to a peak of 29.5m this spring. When the economy slowed, as it did in 2002 and 2005, employers did not sack workers but instead clung on to them.

But in the third quarter of this year, employment fell by almost 100,000 from the previous three months. That decline looks set to worsen as firms batten down the hatches. Employers were reluctant to get rid of staff because redundancies are expensive and destroy morale among those who keep their jobs, says John Philpott, chief economist of the Chartered Institute of Personnel and Development. Now many believe they have no other option. Although a slowdown in immigration may soften the blow for those seeking work, the impact will still be severe.

Initially, job cuts were most apparent in finance and homebuilding. Now they are spreading throughout the private sector, says Lai Wah Co, the CBI’s head of economic analysis. Manufacturers surveyed by her group are more pessimistic about the outlook for production over the next three months than at any time since 1980.

The regional profile of the recession is changing too. London is particularly vulnerable because of its dependence on financial services. A study for the Local Government Association published this week suggests that London will lose 374,000 jobs—a bigger share of its employment than elsewhere—over the next two years.

But early hopes that other regions might get off lightly have been dashed. Over the past year, the jobless rate has risen more in the north-east and in Yorkshire and the Humber than in London, and by as much in Wales. As the economic woe ripples out from finance, no part of the country will be spared a sharp rise in unemployment, says Mr Philpott. Across Britain, the recession is turning personal.

Link:
http://www.economist.com/world/britain/PrinterFriendly.cfm?story_id=12641916

Comment:
The recession started in the U.S., belongs to one of the causes why recessions in other countries started as well. The affects of the U.S. recession have also an impact on Great Britain's economy, because American companies located in GB cut back in labor.
Great Britain is facing the worst recession since the early 1990s. Job losses belong to the agenda.

Oezguer (Oscar).

Oil demand

The world’s demand for primary energy will grow by 45% between 2006 and 2030, according to new forecasts from the International Energy Agency (IEA). The global demand for oil is expected to rise from 85m to 106m barrels a day. The thirst for oil among the mostly rich countries in the OECD is set to fall—so that all and more of the increase in oil demand will come from developing economies. The IEA reckons China will account for 43% of the rise in demand, with India and the Middle East contributing around 20% each. With oil consumption comes pollution. The IEA predicts that three-quarters of the increase in emissions between now and 2030 will come from China, India and the Middle East.

Link:
http://www.economist.com/markets/indicators/displaystory.cfm?story_id=12607120&fsrc=rss

Comment:
The economy is very oil hungry which the chart above shows clearly. The economy is doing remarkable efforts in every aspect to improve fuel efficiency or invent alternative usages of other energy sources, such as hybrid cars, photovoltaics, etc. But all these efforts and ideas seem to develop very slow compared to our hunger for more and more oil. Without shifting in the highest gear for more improvements and consistent usage of alternative energy by everybody, there will be a disaster once all oil resources exhausted.

Oezguer (Oscar).

The car industry – Pass the plate

If Detroit’s carmakers are bailed out, Europe’s will be next in line

NOT only in Washington, DC, is there a fierce debate over state aid to the beleaguered car industry. On November 18th, just as the bosses of General Motors (GM), Ford and Chrysler were lining up before the Senate banking committee to ask for help, the directors of the European Investment Bank, the European Union’s lending arm, were considering whether to give Europe’s carmakers €40 billion ($51 billion) in soft loans. The previous day the German chancellor, Angela Merkel, had met executives of GM’s European subsidiary, Opel, to discuss guaranteeing a €1 billion liquidity line in the “worst case” of its American parent going bankrupt.

Despite the appearance of similarity on both sides of the Atlantic, however, there are big differences. For one thing, the plight of the Detroit Three is much more urgent. GM’s boss, Rick Wagoner, told the senators that the economy faced “catastrophic collapse” if bridging loans were not quickly made available. He gave warning that by the year’s end GM might not have enough money to pay its bills. Ford’s cash position is stronger—company insiders reckon that it might be able to scrape through on its own resources—but its chief executive, Alan Mulally, was not on Capitol Hill just for the ride. He fears that if either Chrysler or GM (particularly GM, since it is so much bigger) were to fail, the impact on the parts suppliers on which all three firms depend could bring down Ford as well.

The Detroit Three can be reasonably confident of getting some help—eventually. Next year a sympathetic President Obama, and big Democratic majorities in both houses of the new Congress, should ensure that. But will that be too late? As The Economist went to press there seemed little chance that the Senate would pass a bill to allow the carmakers to get $25 billion of bridging finance from the $700 billion package set up to bail out the financial system. Many Republicans strongly opposed the idea of diverting funds to carmakers.

The condition of Europe’s carmakers is hardly healthy, but unlike their Detroit counterparts they are still some way from the critical list. J.D. Power, a market-research firm, forecasts that the western European market will shrink by 7.9% this year, compared with a 16% drop in America. But things are getting grimmer by the day. J.D. Power expects a further 10.5% contraction in Europe in 2009. Renault, which is cutting 6,000 jobs in Europe, thinks the market could shrink by 20%.

As in America, there is disagreement both within the industry and among politicians about whether special aid is needed and, if so, what form it should take. Already, there has been a chorus of dissent over the prospect of Opel being singled out for help. And if aid is provided, what strings should be attached? The European Commission, which has been battling the carmakers over the introduction of tough CO2-emission rules in 2012, will want to make any aid dependent on assurances that the industry will build more fuel-efficient cars (an echo of a $25 billion package approved by Congress in September, from which nothing has yet been disbursed).

The German makers, who build the biggest, fastest cars, and are therefore having to spend most to reduce their emissions, are in favour of such a subsidy. But the French and Italians, who specialise in producing economical cars, say they are quite capable of complying with the new rules without any help from the taxpayer—and do not see why the Germans should benefit from their own profligacy. They would prefer Europe-wide “scrapping” incentives to encourage sales of new cars.

Even within the commission, there are differences. “I’d welcome it if everything was done to prevent an important and traditional car producer in Europe from dropping out of the competition for reasons it is not responsible for,” says the industry commissioner, Günter Verheugen. But Neelie Kroes, the competition commissioner, rejects any comparison between the car industry and the financial sector, and has warned member countries against offering their carmakers unfair subsidies.

Much depends on what the Americans decide to do. One option for Europe, assuming the Detroit Three get their money, would be to complain to the World Trade Organisation. But Ford and GM are too important to Europe’s car industry to make that probable. The betting is that Europe’s carmakers will get a helping hand too—even if they do not really need it.

Link:
http://www.economist.com/business/displaystory.cfm?story_id=12638642&fsrc=rss

Comment:
It seems that Europe is playing tough hardball with the big three compared to the U.S. Europe does not want to grant the money right away like the U.S. government and waits up the worst case. In my point of view, the earlier the big three get the money the better they can turn things around. If Europe waits too long, it is just going to get more difficult for the car companies to get out of that mess. On the other hand, the big three are not the only car companies who are affected. So, by granting them the governmental help, other European car companies will jump on the band wagon and solicit money as well.

Oezguer (Oscar).

Gun sales – Booming

A surge in the run-up to the election

MANY sorts of Americans are happy that Barack Obama has been elected to be their 44th president: blacks, rich whites, Hispanics, women, the young. But no one seems happier, at the moment, than the owners of gun shops.

According to the National Instant Criminal Background Checks System (the FBI body that oversees applications for people who want to buy guns), the number of checks run between January and October this year rose by 9%, compared with the same period in 2007. Even more dramatically, the body reports that 15.4% more checks took place in October 2008 than in October 2007.

Gun enthusiasts reckon there is a simple reason: Barack Obama. “It’s clear from President-elect Obama’s voting record and statements that gun-control policies, including gun bans, will be back on the table. Law-abiding Americans are recognising this and acting accordingly,” says Ted Novin, director of public relations for the National Shooting Sports Foundation.

Mr Novin is perplexed by, and therefore wary of, the seemingly contradictory messages on guns that Mr Obama has put out during his time as an Illinois senator and as a presidential candidate. Back in the old days, Mr Obama used to sound supportive of the District of Columbia’s ban on handguns. But when this was overturned by the Supreme Court in June, Mr Obama welcomed the decision. Mr Novin says he does not understand what the president-elect means when he calls for “commonsense safety measures” for guns. To add to his perplexity, he notes that Mr Obama’s website stated that he “believes that the Second Amendment creates an individual right, and he respects the constitutional rights of Americans to bear arms.” What to believe?

The National Rifle Association (NRA) is equally unimpressed. “The President-elect’s campaign rhetoric did not match his voting record,” states Andrew Arulanandam, an NRA spokesman. The NRA thinks that next year the Democratic president and the incoming, more strongly Democratic, Congress will start by going for a ban on semi-automatic assault rifles, such as the Russian-made AK-47, or AR-15’s, which are a favourite with police departments. The association has sponsored a website, www.gunbanobama.com, whose title is self-explanatory.

Meanwhile, gun sales are going like gangbusters. Chuck Wiggins, manager of the Patriot Arms gun shop in a suburb of Tampa, Florida, says that ever since Mr Obama became a contender “the sales of assault rifles here have at least tripled; I can’t keep enough of them stocked. And ammunition is selling out so fast that I’m calling manufacturers to try to find some more to buy.”

Link:
http://feedproxy.google.com/~r/economist/full_print_edition/~3/UZbPM2YaGg8/displaystory.cfm

Comment:
In my point of view people should not be allowed to carry guns at all. It just raises the potential of crimes. Even though some might use their guns only for self-protection, there is most likely the risk that criminals have it easier to obtain guns as well.
President Obama is very contradictory in his statements and when he supports gun bans once again, that will hurt his credibility. He has to be more careful especially in his position as the president of the United States.

Oezguer (Oscar).

Twenty Reasons Why We're Not Consuming

This week's news about October retail sales (-2.8% relative to the previous month and now down in real terms for five months in a row) confirm that the U.S. has entered its most severe consumer-led recession in decades. At this rate of free fall in consumption, real gross domestic product growth could be a whopping 5% negative or even worse in the fourth quarter of 2008. And this is not a temporary phenomenon: Almost all of the fundamentals driving consumption are heading south on a persistent and structural basis.

Consider the many severe negative factors affecting consumption. One can count at least 20 separate or complementary causes that will sharply reduce consumption in the next several years:

For the rest of the article click on this link:
http://www.forbes.com/2008/11/19/consumer-debt-savings-oped-cx_nr_1120roubini.html?feed=rss_news

Comment:
It is not surprising that the recession has been affecting retail. According to my earlier contributions in this blog there have been several indicators for the plummet in the overall economy. So the current retail situation is just another reflection of the fact that people who are affected by the recession have to cut costs in every aspect of their life.

Oezguer (Oscar).

Investors Shrug Off Recession News

Japan - the world's second biggest economy - has become another victim of the global financial crisis.

For the first time in seven years, the Asian powerhouse slipped into recession emphasising the extent of the economic downturn in this volatile region.
Japan's GDP- the value of the nation's goods and services- shrank at an annual pace of 0.4% in the July -September quarter, joining the 15 nations of the Euro-zone in recession.
The Organisation of Economic Development and Cooperation Development -the so called club of rich nations - has said it expects the United States to slide into recession when its figures are released in January.
The Japanese market mostly shrugged off news of the recession.
Some analysts believe the bad news had already been priced into a market that has seen its growth halved in the last 12 months.
The benchmark Nikkei 225 stock average finished up 60.19 points, or 0.7%, at 8,522.58.
Among carmakers, Toyota dipped 0.3%, Mitsubishi Financial Group fell 1.7% while Honda rose 1.7%.
"It wasn't a surprise and people are expecting poor figures for the next quarter as well, but that's largely factored in already," Daiwa SB Investment portfolio manager Koichi Ogawa said.
And with many companies having already announced significant downgrades to earnings, the Japanese market took the second straight quarter of economic downturns in its stride.
News of Japan's recession came hours after a weekend meeting of world leaders in Washington to discuss reforms of the world's financial structure.
The highly-hyped gathering provided a display of unity between rich and emerging nations but little else.
Long-awaited concrete measures to deal with the crisis were postponed until their meeting in April.
"Basically it was nice that a lot of important people gathered together and set a direction but nothing concrete emerged," said Ogawa.

Link:
http://news.sky.com/skynews/Home/Business/Japan-Recession-First-One-Since-2001---Investors-Shrug-Off-News/Article/200811315152955?lpos=Business_First_Buisness_Article_Teaser_Region_5&lid=ARTICLE_15152955_Japan_Recession%3A_First_One_Since_2001_-_Investors_Shrug_Off_News

Comment:
After recession has hit the US and Europe, now the next victim is Japan and this recession is the first in the last seven years. This also affects Japanese car makers like Toyota or Honda. One of their biggest target markets is the US. Since the economy is bad in the US, people spend their money more carefully, which affects the car industry as a whole.
Less economical growth and less earnings in turn affect stock markets as a whole as well. All this happenings are comparable to a domino effect.

Oezguer (Oscar).

Bailout foe: Auto industry a 'dinosaur'

Republicans and Democrats spar over need for federal rescue of U.S. auto industry. Senate Democrats will introduce bill on Monday.

Hardline opponents of an auto industry bailout branded the industry a "dinosaur" whose "day of reckoning" is near, while Democrats pledged Sunday to do their best to get Detroit a slice of the $700 billion Wall Street rescue in this week's lame-duck session of Congress.

The companies are seeking $25 billion from the financial industry bailout for emergency loans, though supporters of the aid for General Motors Corp. (GM, Fortune 500), Ford Motor Co. (F, Fortune 500) and Chrysler LLC have offered to reduce the size of the rescue to win backing in Congress.

Senate Democrats intended to introduce legislation Monday attaching an auto bailout to a House-passed bill extending unemployment benefits; a vote was expected as early as Wednesday.

A White House alternative would let the car companies take $25 billion in loans previously approved to develop fuel-efficient vehicles and use the money for more immediate needs. Congressional Democrats oppose the White House plan as shortsighted.

Majority Democrats will need at least a dozen GOP votes in the Senate to prevent opponents from blocking their measure - assuming all Senate Democrats support it. Senate Republican Leader Mitch McConnell of Kentucky questioned whether there was sufficient Democratic support for an auto bailout in a statement released Sunday.

For the full article click on the link:
http://money.cnn.com/2008/11/16/news/companies/auto_bailout_sunday.ap/index.htm

See also:
http://money.cnn.com/2008/11/15/news/companies/automakers_bailout_congress.ap/index.htm

Comment:
Once again the government considers a bailout. This time it is the automobile industry.
Governmental subsidies might be one possible way to get US automakers back on track. But the governmental requirements should be strictly fulfilled. US automakers should not be allowed to use that money to produce their regular products. Instead, an even bigger focus should be placed on cars which run on alternative energy, thus on research and development, because sooner or later gas prices will not be affordable for consumers anymore. The sooner one company gets a bigger competitive advantage than other companies the bigger economical growth one company will accomplish and boost its profits.


Oezguer (Oscar).

Oil steady at $56

Crude falls as investors focus on a weak demand outlook. OPEC official says the cartel will hold another emergency meeting.

Oil prices fell Friday as investors took cues from from the selloff in stocks as an indicator of weak global demand for energy.

Light, sweet crude for December delivery fell $1.20 to settle at $57.04 a barrel in New York. The contract briefly fell below $56 to a session low of $55.69 a barrel.

Oil traders have been tracking global equity markets as a means of assessing the severity and duration of the economic downturn and its impact on energy demand. As a result, oil prices tend to rise and fall in tandem with world stock indexes.

For the full article click on the link:

http://money.cnn.com/2008/11/14/markets/oil/index.htm

Comment:
Consumers are probably very happy about the fact that gas prices has plummeted. Especially in a time where the economy is going bad, this seems like a little financial relief for many car owners who depend on a vehicle in their every day life.
But on the other hand, decreased gas prices may tempt many people to drive even more.
Since crude is becoming rare so fast, gas prices should not fall. They should stay high in order to put the automobile industry in even more pressure to build fuel efficient cars or cars with alternative energy. The decrease of the gas prices seem like a step in the wrong direction concerning our moral obligation to preserve a clean environment as a legacy to our next generations.

Oezguer (Oscar).

Jobless Rate at 14-Year High After October Losses

The American economy lost another 240,000 jobs in October, the government reported Friday, as cash-strapped consumers pulled back and businesses hunkered down, intensifying the distress gripping much of the country.

The unemployment rate spiked to 6.5 percent from 6.1 percent, the highest level since 1994. Many analysts now expect unemployment will reach 8 percent by the middle of next year.

Coupled with revisions to September’s data — which now show a loss of 284,000 jobs, down from an initial estimate of 159,000 — the economy has shed 1.2 million jobs since the beginning of the year. More than half the job losses have been in the last three months.

“The economy is slipping deeper into a recessionary sinkhole that is getting broader,” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “The layoffs are getting larger, and coming faster. We’re likely to see at least another six months of more jobs reports like this.”

The latest evidence of widening economic pain seemed certain to inject more urgency into the debate over another round of government spending aimed at stimulating growth. It amplified the sense that President-elect Barack Obama will inherit an unenviable list of challenges.

Mr. Obama has in recent months called for another package of so-called stimulus spending initiatives. Democratic leaders in the House said this week that they would seek swift passage of $60 billion to $100 billion worth of measures that would extend unemployment benefits and food stamps, while aiding states whose tax revenues have plummeted. They would then pursue a broader package of measures that could reach $200 billion after Mr. Obama takes office in January.

The Bush administration has criticized Democratic proposals for immediate aid, raising the specter of a veto.

On Friday, President Bush, in a written statement, acknowledged the latest jobs report as a sign of “difficult challenges confronting our economy.” But he added that a series of “aggressive and decisive measures to address this situation” already unleashed by the government will eventually provide relief.

“It will take time for these measures to have their full impact on an economy in which many Americans are struggling,” Mr. Bush said.

The number of unemployed Americans increased by 603,000 in October to 10.1 million — the largest number since 1983. More than 22 percent of all unemployed people have been out of work for six months or longer — another level not reached in a quarter-century.

Only 32 percent of all unemployed people were drawing state benefit checks in October because of restrictions on eligibility for part-time workers and those who were not in their jobs long enough to qualify. More than half of all unemployed people drew benefits in the 1950s, and about 45 percent received state checks during the last recession in 2001.

“It’s a national shame, the state of our safety net,” said Andrew Stettner, deputy director of the National Employment Law Project in New York. “We need to be helping these families avert financial disaster, and help make up for the loss of consumer demand, and the best way we can do that is to get people unemployment checks.”

In South Plainfield, N.J., Ken Stelma, 49, has been out of work since January, when he lost his job as a customer care representative for a company that installs kitchens. Since then, he has been living mostly on a $562 weekly unemployment check, in place of his old roughly $1,200 paycheck.

Despite dozens of applications — from sales positions at Lowe’s and Home Depot to a cooking job at a home for the elderly — Mr. Stelma, remains without work.

Last month, Mr. Stelma’s unemployment benefits ran out. Now, he is relying on his girlfriend to pay his rent. This month, his provisional health coverage — a carryover from his best job — will end, because he can no longer afford the $250 a month. That will leave him with a tumor in his foot and no insurance. Next, he figures he will have to stop paying his auto insurance.

“What am I going to, drive illegally just to go out and look for a job?” Mr. Stelma said.

The latest monthly snapshot of the jobs market reinforced how the economy remains gripped by a potent combination of troubles — plunging housing prices, tight credit and shrinking paychecks — with all three in a downward spiral.

Companies have been hiring tepidly and laying off workers throughout the year, as business has slowed, while cutting working hours for those on the payroll. That trend continued in October: The so-called underemployment rate — which includes people working part-time for lack of full-time positions and those who have given up looking for work — rose to 11.8 percent, up from 8.4 percent a year earlier.

“What you see now is this cascading of unemployment moving from hours cut to hiring freezes to layoffs,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “At this point, we have a very toxic combination of all of the above. There’s almost no economic activity out there that’s going to generate jobs right now. This is the front edge of the deeper trough of the recession. It’s going to get worse before it gets better.”

Wages have effectively shrunk for most workers, as rising costs for food and fuel have more than absorbed meager increases in pay. In October, weekly wages for rank-and-file workers — those not in supervisory or managerial positions — grew 2.9 percent from October 2007, almost certainly below the rate of inflation.

The health care industry and public schools were the only sectors that showed more than modest growth last month. Otherwise, losses were deep and broad. Some 90,000 manufacturing jobs disappeared. So did 49,000 construction jobs. Retail lost 38,000 jobs lost in October. The financial industry shed 24,000.

All of this came on the heels of the revised September data showing that 284,000 jobs were lost that month — the worst toll since November 2001, in the aftermath of the terrorist attacks in New York and Washington.

Fewer people working translates into less spending power: Consumer spending dropped between July and September — the first quarterly decline in 17 years — further eroding the motivation for businesses to hire.

Recent days have offered fresh indications of trouble. On Thursday, major retailers reported a sharp pullback in sales in October, presaging what is likely to be the weakest holiday spending in many years.

The annual pace of auto sales fell off in October, down 15 percent compared to September, according to analysis from Goldman Sachs.

The widely watched Institute for Supply Management survey fell in October to depths last seen 26 years ago, reflecting shrinking industrial activity and suggesting weakening demand for goods as the economy slows.

Banks continued to tighten their purse strings in October, according to a survey of senior loan officers conducted by the Federal Reserve. Economists construed the survey as an indication that even healthy companies and many households were having difficulty securing capital, further braking the economy and making prospects more difficult for American workers.

Many economists expect this picture to worsen. Though a $700 billion taxpayer-financed bailout has staved off fears of an imminent collapse and restored some order to the financial system, it has not persuaded banks to lend freely. Credit remains tight for businesses and homeowners.

“To the extent we’re going to have a significantly tighter credit regime,” said Alan D. Levenson, chief economist at T. Rowe Price Associates in Baltimore. “it’s going to take us longer to come out of this.”


Link: http://www.nytimes.com/2008/11/08/business/economy/08econ.html?partner=rssnyt&emc=rss

Comment:
America is facing a tough time and it seems that there is no way out. If one crisis seemed to get taking care of, the U.S. hits a new rock bottom. The government tries to get out of the recession with governmental spendings once again in order to stimulate growth. This also is supposed to help unemployed people to get back on track. But will this really help? Especially the newly elected president Barak Obama will face a difficult time facing this ongoing issue of bad economy. The media will definitely have a close look at him and follow his decisions carefully.

Oezguer (Oscar).