Monday, November 05, 2007

Keep Cutting

Excerpts from James C. Cooper - Businessweek - Business Outlook

On Guard Against Recession
All signs suggest meager growth—if that—in the fourth quarter, with little improvement in early 2008. So the Fed is taking preemptive action

The goods news: The government says the economy grew 3.9% in the third quarter. The bad news: That's the last of the good news on growth. In the fourth quarter, look for the full brunt of the credit crunch, the latest downturn in the housing slump, $90-a-barrel oil, and growing caution by consumers and businesses to take their tolls. Most economists expect growth of only 1% to 2% this quarter, with little improvement in early 2008, and many of those folks have their fingers crossed. The risks to that somber forecast are almost all to the downside.

It is the unknowns that prompted the Federal Reserve to take out some more recession insurance on Oct. 31 by lopping a quarter-point off its target interest rate, bringing it to 4.5%. Whether the economy will be derailed by the tighter financial conditions caused by the mortgage-related turmoil in the credit markets remains the biggest unknown. Federal Reserve Chairman Ben S. Bernanke and other influential policymakers have noted recently that in times of high uncertainty, strong, preemptive action may be the right policy to prevent broad damage to the economy.......

........The problem is that the third quarter started strong but finished much weaker, with manufacturing, hiring, and confidence on the wane. The Conference Board's October index of consumer confidence dropped for the third month in a row, to a two-year low, partly reflecting job worries.....

......Business confidence is also slipping, which puts capital spending and payroll gains at risk. Companies are hesitant to commit money to new projects. Orders for capital goods other than aircraft have stagnated since April, and production of business equipment has made no progress since July. A credit squeeze could be one reason. Yield spreads between investment-grade corporate bonds and riskless Treasury notes, a gauge of investors' risk aversion, remain wide, even for AAA-rated companies.........

Full Story Link Here

No comments: