Tighter credit stalling US economy's growth
Sunday, 23 September 2007
NEW YORK, Sept 22 (AP): Strained by a tight credit market, the nation's economy should stumble along at a slower pace in coming months, but it may find help from lower interest rates and possible employment gains.
The conference board said Thursday its index of leading economic indicators dropped 0.6 per cent in August, slightly higher than the 0.5 per cent fall analysts were expecting. The drop was offset by a revised 0.7 rise in July. While the index has jumped up and down in recent months, the cumulative change over the past six months has been a 0.5 per cent rise.
That's consistent with the modest growth of the nation's gross domestic product, which grew at around 2 per cent in the second quarter, analysts said.
The Labour Department also said jobless claims declined to the lowest level in seven weeks, surprising analysts who were expecting a jump in claims.
"That shows there's firm demand for labour despite the turmoil in the marketplace. That's good news," said Gary Bigg, associate economist with Bank of America.
Taken together, Bigg said the data indicated the economy will continue its slow but steady growth.
The conference board report, taken before the Fed's rate cut earlier this week, may simply reflect the immediate effects of the clampdown in credit markets in August, analysts said.
While the credit squeeze has created "significant market stress," Federal Reserve Chairman Ben Bernanke gave fresh assurances last Thursday that regulators would step in to curb the fallout. The bank cut a key interest rate by a half-point last week, down to 4.75 per cent. The bigger-than-expected cut was an effort to ensure the country isn't pushed into a recession by turbulence in the financial markets.
The credit crisis started with rising defaults in subprime mortgages - home loans made to people with weak credit histories. Analysts believe these problems, along with declining consumer confidence, could lead to a recession.
The conference board report tracks 10 economic indicators. Only one of those indicators, real money supply, advanced in August.
The negative components, starting with the largest, were consumer expectations, unemployment claims, stock prices, building permits, vendor performance, manufacturers' new orders for non-defence capital goods, interest rate spread, and manufacturers' new orders for consumer goods.
Weekly manufacturing hours held steady.
The report is designed to forecast economic activity over the next three to six months.
The index rose a revised 0.7 per cent in July, after slipping 0.1 per cent in June. The erratic pattern reflects the ongoing uncertainty over the impact of the credit crisis on the overall economy.
"Economic growth is likely to continue in the near term, although at a slower pace," said Ken Goldstein, labour economist for the conference board.
For growth to continue, however, Goldstein said there will be two potential hurdles to overcome - business confidence and the "wealth effect," which has been hit by falling home prices.
"This loss of household assets, if combined with weak employment growth, could have a negative impact on consumer spending going forward," Goldstein said.
Stocks dipped Thursday following weaker-than-expected earnings at Bear Stearns. The Dow slipped 48.86, or 0.35 per cent, to 13,766.70.
Broader stock indexes also declined. The Standard & Poor's 500 index fell 0.67 per cent to 1,518.75 and the Nasdaq composite index fell 0.46 per cent to 2,654.29.
The conference board said Thursday its index of leading economic indicators dropped 0.6 per cent in August, slightly higher than the 0.5 per cent fall analysts were expecting. The drop was offset by a revised 0.7 rise in July. While the index has jumped up and down in recent months, the cumulative change over the past six months has been a 0.5 per cent rise.
That's consistent with the modest growth of the nation's gross domestic product, which grew at around 2 per cent in the second quarter, analysts said.
The Labour Department also said jobless claims declined to the lowest level in seven weeks, surprising analysts who were expecting a jump in claims.
"That shows there's firm demand for labour despite the turmoil in the marketplace. That's good news," said Gary Bigg, associate economist with Bank of America.
Taken together, Bigg said the data indicated the economy will continue its slow but steady growth.
The conference board report, taken before the Fed's rate cut earlier this week, may simply reflect the immediate effects of the clampdown in credit markets in August, analysts said.
While the credit squeeze has created "significant market stress," Federal Reserve Chairman Ben Bernanke gave fresh assurances last Thursday that regulators would step in to curb the fallout. The bank cut a key interest rate by a half-point last week, down to 4.75 per cent. The bigger-than-expected cut was an effort to ensure the country isn't pushed into a recession by turbulence in the financial markets.
The credit crisis started with rising defaults in subprime mortgages - home loans made to people with weak credit histories. Analysts believe these problems, along with declining consumer confidence, could lead to a recession.
The conference board report tracks 10 economic indicators. Only one of those indicators, real money supply, advanced in August.
The negative components, starting with the largest, were consumer expectations, unemployment claims, stock prices, building permits, vendor performance, manufacturers' new orders for non-defence capital goods, interest rate spread, and manufacturers' new orders for consumer goods.
Weekly manufacturing hours held steady.
The report is designed to forecast economic activity over the next three to six months.
The index rose a revised 0.7 per cent in July, after slipping 0.1 per cent in June. The erratic pattern reflects the ongoing uncertainty over the impact of the credit crisis on the overall economy.
"Economic growth is likely to continue in the near term, although at a slower pace," said Ken Goldstein, labour economist for the conference board.
For growth to continue, however, Goldstein said there will be two potential hurdles to overcome - business confidence and the "wealth effect," which has been hit by falling home prices.
"This loss of household assets, if combined with weak employment growth, could have a negative impact on consumer spending going forward," Goldstein said.
Stocks dipped Thursday following weaker-than-expected earnings at Bear Stearns. The Dow slipped 48.86, or 0.35 per cent, to 13,766.70.
Broader stock indexes also declined. The Standard & Poor's 500 index fell 0.67 per cent to 1,518.75 and the Nasdaq composite index fell 0.46 per cent to 2,654.29.