US Economic Outlook Dims

[Big Ol' Smitty 0]

U.S. Economic Outlook Dims

 

Tue Dec 7, 3:51 PM ET Business - Reuters

 

By Alister Bull

 

WASHINGTON (Reuters) - The U.S. economic outlook dimmed on Tuesday after reports said business productivity grew more slowly in the third quarter than first estimated, labor costs rose and other indicators signaled softening activity.

 

Chain store sales fell in the crucial shopping period after Thanksgiving, planned job cuts climbed during November and a survey of consumer confidence waned in possible pointers that the economy tempered its pace in the final months of the year.

 

Outstanding U.S. consumer credit swelled to $2.093 trillion in October, the Federal Reserve (news - web sites) said.

 

The Labor Department (news - web sites) said nonfarm business productivity, or worker output per hour, grew at a 1.8 percent annual rate in the July-to-September period -- the slowest clip since the fourth quarter of 2002. It also nudged up growth in unit labor costs to a 1.8 percent pace in a potential boost to inflation.

 

Wall Street had expected an upward revision to productivity growth to a 2.0 percent rate from an originally reported third-quarter pace of 1.9 percent. Productivity in the second quarter grew at a rate of 3.9 percent.

 

"The data tells us that companies have pushed existing workers as far as they can and that is why they are increasing employment. But this is also adding to their labor costs," said Gary Thayer, chief economist at A.G. Edwards & Sons.

 

A preliminary report released last month had shown 1.9 percent productivity growth in the third quarter and a 1.6 percent rise in unit labor costs.

 

Higher unit labor costs also backed views the Federal Reserve will stick with a measured pace of rate increases and lift its benchmark funds rate a quarter percentage point to 2.25 percent at its next meeting on Dec. 14.

 

"The Fed is watching productivity growth very closely and assumes that it is higher (on a trend-basis) than the current pace. If it stays this low it could change the Fed's view of inflation. But not at this stage," Thayer said.

 

The slowdown in productivity was traced to a rise in hours worked, which grew at a rate of 2.4 percent in the third quarter, the fastest pace since third quarter of 1999 as companies ran operations for longer to maintain output. This had been initially reported as a 2.1 percent growth rate.

 

JOBS

 

Productivity growth was also substantially lower compared with a year ago when it rose by 9.0 percent. But this is not necessarily bad news since it also reflects cyclical changes in company hiring and a welcome boost to job creation.

 

Officials had predicted productivity would moderate as companies exhaust ways of boosting output by making existing workers more efficient and instead lifted hiring. During the third quarter over 400,000 new U.S. jobs were created.

 

However, the November employment report said a much weaker than expected 112,000 jobs were created and the impression of a troubled labor market was backed by a report from employment consultant Challenger, Gray & Christmas.

 

It found that U.S. firms announced 104,530 in November, compared with 101,840 in October and warned this could crimp consumer spending at a critical time for the economy.

 

"The biggest worry for the economy is that the large number of lower-middle class and middle-class Americans struggling to make it paycheck to paycheck will be short of discretionary income during the holiday shopping season," said John Challenger, the firm's chief executive, in a statement.

 

A survey of consumer confidence told a similar story, with Investor's Business Daily and TechnoMetrica Market Intelligence reporting that their economic optimism index fell modestly to 54.5 in December after dropping to 55.1 in November. A reading above 50 indicates optimism.

 

Indeed, U.S. retailers continued to report disappointing sales in the key week after the Thanksgiving Day holiday, which kicks off the Christmas shopping season.

 

A report by Redbook Research, an independent company, showed sales in December to-date were down 0.8 percent compared with November.

 

A separate report, from the International Council of Shopping Centers and UBS, found sales fell 1.7 percent last week, compared with a 1.5 percent decline the previous week.

 

Source: Reuters

http://story.news.yahoo.com/news?tmpl=stor.../economy_usa_dc

[NoCalMike 0]

....but the tax cuts....I mean, that $300........Wow.

[Guest Cerebus]

*awaits arrival of Popick*

[Justice 0]

....but the tax cuts....I mean, that $300........Wow.

Of course, NoCal ignores just about the entire last year of growth sparked by the Tax Cuts.

 

Nice.

[Dr. Tyler; Captain America 0]

I maintain that the long term growth of our economy is most threatened by the spiraling debt and deflating dollar, not the labor market.

[Stephen Joseph 0]

What Tyler said about the debt (not the deflating dollar, which actually helps us) is right. That's what threatens us the most.

 

As for quarterly fluctuations in the numbers...hooo hum. Still trending upward people.

 

I'll be back later on for more. Right now, I've been ReKKKruited to bash some French guy in another folder

[Guest Agent of Oblivion]

Soon you will all be more poor than me.

[Stephen Joseph 0]

not me baby, cushy government job!

[kkktookmybabyaway 0]

But when we all lose our jobs who's going to pay you?...

[Guest Cerebus]

Your mom. In fact, she'll be paying us for a change!

 

OH~!

[kkktookmybabyaway 0]

Get off my mom -- I just got off yours.

 

Oh, and I noticed the last name of the person who wrote the article smitty posted is "Bull..."

[Dr. Tyler; Captain America 0]

Again, I raise the point to SJ that the deflating dollar over the long term will discourage foriegn investment into our treasury bonds, causing us to raise interest rates at a faster rate than we want to, as to avoid inflation... which will, in and of itself, decrease economic growth.

 

Dispute that. It's pure Friedman global economic policy; it happened in Southeast Asia and Russia during the '97-'99 global economic crisis when the Thai baht dropped significantly. The problem there ended up being that it became a global ripple that affected almost everyone -- Thai insecurity led to concerns about the rest of Asia, which led to Japan and China importing less, which led to Russia's collapse in oil prices, which led to pretty much the entire world taking a hit from it.

 

Now, granted, the situation is different; our currency is, undoubtedly, more stable than other nations, but while a strong dollar may discourage other nations from buying our exports, that's pre-1990's thinking; in a global economy, our exports are on a far different scale. We're not exporting manufactured goods as a primary means to build our economy. When our dollar is strong with long term trends favoring that strength, more investors are more likely to invest in treasury bonds. That keeps our dollar at a stable rate and keeps capital within our country. However, with the current trends of our dollar dropping in strength, people are going to become less likely to invest in US treasury bonds -- instead opting to back the Euro or another stengthening form of currency -- and it'll drive inflation up. As we all know, inflation is not desirable; to curtail it, we have to raise interest rates, and that'll have a dampening effect on many parts of the market, not the least of which is consumer spending. Not to mention the fact that with the current administration's policy of promoting a weaker dollar will lead to their being no forseeable end to that cycle of raising interest rates and further inflation.

 

It's obvious that any government won't sit around while their country slips into a depression; I'm not claiming that this is inevitable by any means. But having a policy that favors a weaker dollar isn't necessarily a good thing at all.

[Stephen Joseph 0]

It was the IMF policies of "braking" tight monetary/tight fiscal that hurt several of the asian countries by pulling their exchange rates back up. I'm not saying a weak dollar is desirable, apologies if that's how it came out. I'm just saying that a weak dollar isn't the problem. Our weak dollar problem is coming vis a vis pressure from foreign countries who are supported us by supporting our debt (China/Japan) etc. Countries who have their debt to GDP ratio over 8% typically face severe problems (at least in the past). I think we're something like 5.5% right now and that's why the IMF is saying something about it (to whit the US seems to be ignoring, but Greenspan's saying something similar)

 

I guess what I'm trying to say is that a weak dollar is a sympton of something else we should be a little more focused on. The disease is the debt.

[Guest Cerebus]

How are the debt and weakness of the dollar related? I may have been a political science (ha!) major but I only took one macro class my freshman year I have long since forgotten.

[Stephen Joseph 0]

So we have this deficit right? Well, we're obviously getting the money somewhere, and its from foreigners that cover it. They're buying bonds/assets here.

 

Anyways, we kinda need them to keep this up. They're buying our assets using their dollar reserves (or converting their own currency to dollars). Problem is, this can only go so much. A weak dollar does make investment cheaper and therefore more attractive, but only to the point that the risk doesn't tip it over.

 

Kinda like this: Suppose you've got two receivers. One's good for 5-10 yards, and won't likely drop the ball or be intercepted. You've got your other guy who can get you a touchdown in one catch (call him Neon Deon) but there's also alot more of a chance he'll drop or the ball will be intercepted.

 

So far, Neon's had a great game. Who do you throw too? Depends on how you feel about the risk. If you can afford it, throw it deep. If you can't keep your ball a little closer to home.

 

So its a catch-22 really. A weak dollar is allowing for countries to finance our debt more cheaply (and thus make debt more attractive to us, supposedly) but debt carries its own risk, and if countries get jittery as we slide to 8% of gdp=debt, they may just prefer something a bit more closer to themselves.

 

I hope that answers it, in a way. Currency values clear financial markets, that's why they're important for deficit financing.

[Dr. Tyler; Captain America 0]

Fair enough. As you can see, I interpreted your comments as weak dollar = good, which you apparently weren't saying.

 

You ARE spot on with the analysis of the Asian markets, being that their currencies crashed when the IMF laid down the law; however, my analysis (which is part my own, part Friedman's) was regarding the results of having weak currency. Basically arguing the same thing on different terms.

 

Also, looking at your analysis of weak dollar vs. debt, part of my point was that the weaker the dollar gets, the more likely the risk is going to be overwhelming for the investors; thus, we'd have to raise interest rates to encourage investment, and thus continuing the downward spiral. Just clarifying my point

[Guest Cerebus]

I thought most of the debt was owed to ourselves, i.e. Americans who buy bonds and T-Bills (like me for instance).

[Stephen Joseph 0]

in stock terms yet

not flow terms, over time our debts are increasingly foreign

[Dr. Tyler; Captain America 0]

Part of that is also what results from corporations becoming increasingly multinational.

[Stephen Joseph 0]

okay...

 

T and I are agreeing point by point in this thread (aside from communicational differences)

 

wow.

 

Maybe you're not so bad after all you commie!

[kkktookmybabyaway 0]

Perhaps it's not that Tyler's getting "better," but rather you are getting "worse..."

[Stephen Joseph 0]

you mean...im becoming LIBERAL COMMIE ELITIST SCUM~!

 

nooooooooooooooOOOOO!!!!

 

<--the above was a satire. Present liberal commie elitists are excluded.

cept for inxs

[kkktookmybabyaway 0]

Never thought I'd hear the words "INXS" and "elite" in the same sentence not followed by something like "idiot..."

[Guest SideFXs]

Oh doom and gloom.

 

Did the article even mention that oil is down from 56 dollars a barrel to 42 dollars a barrel, in just 6 weeks?

 

Here is a link to see the trend in oil prices:

 

http://futures.tradingcharts.com/chart/CO/15

 

In technical terms, this is a “head and shoulders” pattern. Prices have peaked and the trend is down. A high volume, fast drop in the price of oil, from the right shoulder, means the trend downward is confirmed.

 

The lower price of oil is the key to increasing profits and neutralizing inflation. Not the value of the dollar.

 

Of course, reducing Federal debt will help restore confidence in the U.S. Government backed American dollar. Hopefully we get a more responsible Congress, in 2005. But, the lower value in the dollar encourages foreign buying of our products. So the equation is changing, but that’s not all bad. We have to balance out all the overseas buying we did in the 1990’s. These are just natural cycles, in the free-market. Try not to panic when the liberal media tries to cast a negative shadow, when economic factors change. The equation stays balanced, as long as the world wants our goods.

 

And they do. The higher than expected 2nd quarter growth in productivity means that there was a higher than expected demand in American products. That is the only positive fact I could find in this stupid Reuters article.

 

You go ahead and believe the worst is going to happen Smitty, et al. That’s what good liberals do best

[Big Ol' Smitty 0]

Wow so you're going to antagonize me just for posting a fucking article. I stand by my "fungal infection" assertion with respect to you.

[Dr. Tyler; Captain America 0]

Try reading my posts too and disputing them.