The consumer may floor the American economy

Lowered real estate prices, mounting energy costs and the growing employment causes serious challenge for the American consumer. The economical growth is predicted to undergo a fallback in the fourth quarter. Right now the economy seems to be in good shape, there is strong economical growth (3.9%) and rising employment (+166 000 jobs). Yet economists are gloomy about the future. They predict a lowered export and spending by consumers. Those two elements are traditionally very important fundaments of the economy.

The American consumer has become vulnerable because of the credit market and the related crisis in the housing market. This has its effect on consumption. Next to that, there is the booming oil price and insecurity on employment. For example, due to the credit crises market leader Countrywide Financial plans to fire 12 000 employees.
For the moment the American economy is healthy and strong but the future looks bleak.

I believe that in a global economy all regional markets are mutually dependent. If the future looks bleak for America, this sure will have consequences for Europe. Possibly we should prepare for an economical downturn in the near future. I think it might be a good idea to closely monitor the American economy in the coming months to get a better grasp of our economic future.

http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3343158

Sarah Struyf

Fed lowers interest rate.

The Fed announced wednesday, that the interest rate would be lowered to 4.5%. After this announcement, the Dow Jones lost a lot of points. Markets started selling after this decision of the Fed, because they believe that this could be the last disrating of the interest.
This already is the second month in a row, that the interest rate is cut. The Fed is doing so, to give the economy some breathing space. Loans get cheaper, so it's easier to invest. The Fed also hopes that a lower interest rate will decrease the negative effects of the housing market on the economy.
The Fed believes that the economy will slow down on the short term, therefore they will keep an eye on inflation.
Basic inflation has weakened this year, but we'll have carefull. Prices of energy and commodities are rising and can result in a growing inflation.
The cut in the interest rate from last wednesday wasn't an unanimous decision. Thomas Hoenig didn't vote in favour... .

It's very strange that markets react by selling, after an interest cut. Normally the regular investments get less attractive and stocks get relatively more attractive. Wednesday the market already expected an interest cut. It actually was the announcement after the decision, which said that the main item for the Fed from now on will be inflation, who caused the selling attitude. If the Fed says that from now on inflation will be the main issue, the Fed imputes that it won't lower interest rates again.
I think it's true that this decision will bring some new investments along. The question remains if this will be enough to stop the cooling of the economy.
The decision wasn't unanimous... . I wouldn't have vote in favour too, the interest cut still caused a shock on the markets. I think it would have been better to wait a month. And then, when it was necessary, they still could have lowered the interest rate.

Thomas

source:http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3335463

Economy doing unexpectedly good.

The American Economy shows unexpected strenght despite the housing and credit market woes. Altought the inflation is staying tame wich make's it uncertain for the FED what to do. The big question is Should the FED cut rates?
The unexpected strength is a sign that the FED shoudn't cut rates, but the tame inflation is a good sign to cut the rates without any fears. The decicion will be announced when the FED concludes its 2 day meeting.
The gross domestic product rose with 3.9% wich is higher then the 3.1% they expected and the 3.8% from last quarter. This is the strongest pase of economic growth since the first quarter of 2006. Export grew 16%, consumption by 3% and prices only rose by 0.8% wich is a big difference from the 2.6% rise last quarter. The readings on both economic growth and price pressures were being closely watched for clues as to what the Fed might do with interest rates. Most economists are forecasting the central bank will trim rates by a quarter-percentage point.

This is good news. After alot of negative reports it finally seems that the american economy is not as weak as it seemed. Now we have to stay sceptic, this is a report by the governement. So we have to wonder if the economy really is recovering or that maybe these numbers are just a way of trying to silence the doubt in the governement. But since we do not have any other information we have no choice but to believe them.
Now I personally think that the FED should cut the rates. Because this could prevent some future problems and its an ideal time to do it because of the tame inflation.

Nico Cottry

Source: http://money.cnn.com/2007/10/31/news/economy/gdp/index.htm?section=money_topstories

Btw: I wrote a blog this week because I forgot to make one last week.

American companies profit from weak dollar.

The weak dollar is giving exporting companies an advantage. Especially the construction business is doing good. The American export is actually rising like never before, in August there was a record of 138.3 billion exported goods and services. The main reason for this bloming export is the low-rated dollar. But the healthy economies of Asia and Europe are helping too, they are importing more American goods. David Huether, head of the ecomical department of the National Association of Manufacturers, says that every sector is profitting from the growing export. The biggest winners are manufacturers of capital goods, like Boeing, telecommunication sector, nutrition sector,... .
Manufacturers of furniture had to move their plants to the cheaper China and Canada in the last years. Canada had the big advantage of her big wood supplies and the cheap Canadian dollar. Now the American furniture sector is looking to move back to its base. There is now more advantage of producing in Canada, last month the Canadian dollar was even worth as much as the American dollar.
Due to this balance Disney even started advertising in Canada, in order to get the Canadians to come to its theme parks. The low dollar is even helping to compensate the trouble in the housing market. But we should be carefull, if the dollar drops to much or to fast, the import will drop too. This will have its effect on foreign economies and eventually also on the American economy. If the dollar drops to much, there will also be inflation problems.

I think the question remains, how far can you lower the dollar. At which point will the import drop? Because it's true that the foreign economies suffer from the low dollar. Especially the 'new' economies, who depend mostly on import. Autartical economies like Europe can rely on their own industry, devolloping countries can't do such a thing.
At the other hand we can't forget that this again proves the economical cycle. America will benefit for a while, until the import drops. Then Europe will suffer from decreasing export. Then again European import will drop and America will suffer from a weak export. And so on.... .


Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3321229

Greenspan questions call for dollar decline

As a result of the mortgage crisis and the current US account deficit, some ask for a depreciation of the value of the dollar. Allan Greenspan, the former chairman of the US Federal Reserve, on the contrary states that there is no need for that. Greenspan emphasizes the difficulty of forecasting currency movements.
National Markets are so enormous and often volatile that they are difficult to be grasped or predicted, and they don’t respond according to a single economical law.
According to Greenspan, the current international economic imbalances are perfectly normal and nothing unhealthy. They merely reflect differences in specialization between economic entities.
There might be a need to adjust some financial variables, but a need for a dollar decline may be one step to far.

I agree with Greenspan that economic markets and national economics are difficult to asset or / and predict. Changes in the economy may be caused by so many different variables that we can’t know for sure what will come next. The only thing we can hope for, is the fact that something has to change when everything seems to become negative. But economies are always subjected to fluctuations. After a down period there is always a time of up.

Sarah Struyf

http://www.ft.com/cms/s/0/fc460b7a-8029-11dc-b075-0000779fd2ac.html

Market will survive high oil prices.

First, let's face up to the bad news. Today you pay over $90 dollar for a barrel of crude oil. During the oil crisis of the late 1970s and the early 1980s a barrel only costed $80 in today's dollars. So the high price is indeed a threat for the economy.
The following years, the oil price is likely to stay above $50. The problem is that al the cheap oil is being used up and new production is more expensive.
Above this, you also have China with his thirsty economy. All this could result in replay of the stagflation of the 1970s and the following recession of 1982-1983, but there is some good news...
First, oil plays a much smaller role in modern economies than it used to. For each additional unit of oil we can provide one-quarter more energy then in the 1970s.
Globlization trends like competition, outsourcing and cheaper foreign labor costs will help to keep the inflation in line.
In a sense this situation is even self-correcting. If the U.S. economy stays in a slump for a long time, the growth of China's export-orientated economy will slacken, and therefore its oil-demand will slacken.
The real danger now would be that some sort of a military conflict disrupted the supply of Middle Eastern oil for a certain time.


I agree that a price of $90 a barrel is a real threat. I also think that the oil price will stay around $50 a barrel, or even will rise to $60 dollar a barrel in the following years. With prices of $50 or even $60, a healthy economy can be sustained. To do so production expenses of oil will have to be decreased.
At the other hand there was the good news. Globlization would keep the inflation, which is caused by these high prices, in line. At the other hand, I can't agree with the self-correcting theory. This isn't good news. If the U.S. economy stays in this slump for a long time, we will have had a recession or even depression, before the self-correcting effect kicks in!
The real danger actually is some sort of military conflict. And with Iran willing to produce nuclear weapons, this remains a possibility. But who can guess the odds?


Thomas

source: http://money.cnn.com/2007/10/19/pf/oil_bullmarket.moneymag/index.htm?postversion=2007101908

Drought in West and Southeast spreads to Mid-Atlantic

Tuesday the governement confirmed what many already knew: the drought parching much of the West and Southeast spread into the Mid-Atlantic area. At the end of September about 43% of the US was in moderate to extreme drought. It has been the fourth warmest year worldwide. But drought is probably the greatest concern in many parts of the country and the year to date has been the driest on record for Tennessee and North Carolina. It was unusually dry in September from the eastern seabord to southern Great Lakes. Water levels at Lake Carter, about 90 miles north of Atlanta, Georgia, are at record lows.
Here are some drought-related conditions:
-The Tennessee Valley Authority shut down Browns Ferry Unit II nuclear power plant due to inadequate stream flow.
-As of September 25, Pasadena, California, experienced its driest year since records began in 1878. Many California communities imposed water use restrictions.

Now this is bad news for the economy. This seriously affects farmers and even many other people. They even had to shut down a power plant because they coudn't get enough water. Water levels are at an all time low and many other things are affected by this drought. And the economy is already in a bad way and this is definetly not helping. Will have to wait a little longer to see what the effects on the economy will be, because things like this need some time to show their effects. I hope the aftermath won't be that bad.

Nico Cottry

Source: http://edition.cnn.com/2007/US/weather/10/16/drought.west.southeast.ap/index.html