President George W Bush sought recently to boost confidence in the flagging United States economy after a virtual stalling of the country’s job-creation machine triggered fresh fears that the world’s biggest economy is on course for recession in 2008.
Amid signs that the spreading malaise from the plunging US housing market will dominate this year’s presidential election, Bush held talks with the country’s two leading economic policymakers — Ben Bernanke, chairperson of the Federal Reserve, and Hank Paulson, the Treasury secretary, at a meeting of the president’s working group on financial markets. The working group, originally set up by Ronald Reagan after the 1987 stockmarket crash, discussed ways of boosting growth .
The White House insisted that the news on the US economy was “mixed” and that growth should strengthen later in the year once it was past the worst of the housing market slump and the steep rise in oil prices, which is adding to business costs and sapping consumer confidence.
“The economy is expected to be stronger in the latter half of the year,” White House spokesperson Tony Fratto said. “I think that’s reflective of what private-sector forecasts are also showing as we work through this transition in housing and dealing with higher energy prices.”
Despite the upbeat talk in Washington, analysts said recently that the Federal Reserve was certain to respond to a sharp jump in unemployment last month by cutting interest rates for a fourth time since September — with some predicting a half-point reduction to boost growth.
Share prices fell in both the US and Europe following news that non-farm payrolls rose by a meagre 18 000 in December, far weaker than even the most pessimistic analyst had been expecting and the lowest increase since the economy was emerging from the dotcom recession in 2003.
In New York, the Dow Jones industrial average continued its jittery start to the new year, losing about 170 points last week to trade at just under 12 900 points. General Motors and Home Depot were among the biggest losers on fears that corporate profits would be hit by weaker consumer spending.
All other measures of share values were also down, with a decline in the computer chip company Intel giving the high-tech Nasdaq its worst start to a new year since the electronic exchange was opened in 1971. The gloomy news out of the US dented sentiment in London, where a morning rise of 60 points in the FTSE 100 became a fall of 130 points by the close last week. The FTSE was down more than 2% at 6 348,5.
Oil prices, which briefly touched $100 a barrel earlier this week, dropped back to just more than $97 a barrel amid speculation that weakness in the US economy would have a marked impact on global demand for crude over the coming months.
“The jobs data is pressuring stock markets and may be viewed as another negative sign for the economy, which, in the long run, will actually hurt oil demand,” said Tom Bentz of BNP Paribas.
Paul Ashworth, US economist for Capital Economics, said: “The weaker than expected 18 000 increase in payroll employment last month, coupled with the rise in unemployment from 4,7% to a two-year high of 5%, significantly increases the chances that the Fed will cut rates by a bigger 50 basis points — half a percentage point — at the end of this month.”
Ashworth added that the gloomy jobs data, coupled with a poor performance by manufacturing recorded earlier this week, suggested that the US economy might have lost what little forward momentum it had. “If the economy isn’t already in recession, it must be pretty close by now.”
The only piece of hopeful economic news for Bush was that fears of a big decline in the US service sector in December proved unfounded. In its monthly report, the Institute of Supply Management said activity dipped from 54,1 in November to 53,9 last month, a better performance than Wall Street had pencilled in.
A reading of above 50 indicates growth, a reading below 50 is a sign of recession. — Â