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Tuesday, January 13, 2009
Economy's Worst Quarter Since 1981-82 Recession?
A raft of economic data and reports for December in the coming week will just about close the door on what will likely be the worst quarter for economic growth since the 1981-82 recession. The Commerce Dept. will tally up the full damage in it's first estimate of real gross domestic product for the fourth quarter on Jan. 30. The GDP numbers are expected to show that the brunt of the economy's weakness is now shifting from consumers to businesses.
Up to late summer, corporate cutbacks in hiring and capital spending have been relatively mild. Companies went into the recession having added conservatively to their payrolls, plant and equipment, and inventories in recent years. Now the plunge in consumer spending that began at mid-year and the new sharp round of tighter credit following the Lehman Brothers bankruptcy are overwhelming those moderating influences. Companies are slashing costs to preserve what's left of their profit prospects, and those efforts are showing up in drastic reductions in payrolls and steeper cuts in capital spending.
Nowhere is this retrenchment clearer than in the manufacturing sector, as this weekâ s report on industrial production, along with two regional surveys of industrial activity, will show. Industrial production in the fourth quarter appears to have shrunk more than 9% at an annual rate, which would be the largest quarterly drop since 1980. Manufacturing is reeling under the impact of credit tightening on housing, autos, and capital goods.
The weekâ s report in retail sales is expected to reflect the continued weakness in consumer demand, even as falling global demand is hammering exports. The Institute for Supply Managementâ s index of export orders fell further in December, hitting a fresh record low.
Foreign trade is also on this weekâ s agenda, and both exports and imports are expected to
how weakness. Sagging U.S. demand is reducing imports, which will actually be a plus for GDP growth in the fourth quarter, but any fall in imports will most likely be swamped by the sudden and steep decline in exports. That means the trade gap will most likely widen, resulting in a net negative impact on GDP growth.
In addition to the state of economic activity heading into the new year, market attention will also be firmly fixed on inflation. The week offers December reports on both producer and consumer price indexes. Both are expected to post sharp declines from November, reflecting falling gasoline and other energy costs. However, the markets will be particularly interested the path of core inflation, which excludes energy and food. Some Federal Reserve officials registered concerns that inflation could fall to uncomfortably low levels in coming months that could raise fears of deflation. Plunging energy prices are expected to send overall inflation into negative territory in coming months, but any move in the core inflation rate toward zero would spark deflation worries.
Up to late summer, corporate cutbacks in hiring and capital spending have been relatively mild. Companies went into the recession having added conservatively to their payrolls, plant and equipment, and inventories in recent years. Now the plunge in consumer spending that began at mid-year and the new sharp round of tighter credit following the Lehman Brothers bankruptcy are overwhelming those moderating influences. Companies are slashing costs to preserve what's left of their profit prospects, and those efforts are showing up in drastic reductions in payrolls and steeper cuts in capital spending.
Nowhere is this retrenchment clearer than in the manufacturing sector, as this weekâ s report on industrial production, along with two regional surveys of industrial activity, will show. Industrial production in the fourth quarter appears to have shrunk more than 9% at an annual rate, which would be the largest quarterly drop since 1980. Manufacturing is reeling under the impact of credit tightening on housing, autos, and capital goods.
The weekâ s report in retail sales is expected to reflect the continued weakness in consumer demand, even as falling global demand is hammering exports. The Institute for Supply Managementâ s index of export orders fell further in December, hitting a fresh record low.
Foreign trade is also on this weekâ s agenda, and both exports and imports are expected to
how weakness. Sagging U.S. demand is reducing imports, which will actually be a plus for GDP growth in the fourth quarter, but any fall in imports will most likely be swamped by the sudden and steep decline in exports. That means the trade gap will most likely widen, resulting in a net negative impact on GDP growth.
In addition to the state of economic activity heading into the new year, market attention will also be firmly fixed on inflation. The week offers December reports on both producer and consumer price indexes. Both are expected to post sharp declines from November, reflecting falling gasoline and other energy costs. However, the markets will be particularly interested the path of core inflation, which excludes energy and food. Some Federal Reserve officials registered concerns that inflation could fall to uncomfortably low levels in coming months that could raise fears of deflation. Plunging energy prices are expected to send overall inflation into negative territory in coming months, but any move in the core inflation rate toward zero would spark deflation worries.
Wednesday, December 31, 2008
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