US economy falls 6.3% in fourth quarter/Glimmers of hope for a feeble U.S. economy

US economy falls 6.3% in fourth quarter
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: March 26 2009 13:12 | Last updated: March 26 2009 15:29
http://www.ft.com/cms/s/0/9a973c12-19fe-11de-9f91-0000779fd2ac.html


The US economy shrank in the fourth quarter at its fastest rate since 1982, revised official figures showed on Thursday, as corporate profits fell at the sharpest pace in 55 years and jobless claims continued to climb.

Updated commerce department data showed US gross domestic product contracting at an annualised rate of 6.3 per cent in the fourth quarter of last year, compared with last month’s estimate of 6.2 per cent. That previous 26-year record came after an overly optimistic January projection that the economy contracted by just 3.8 per cent in spite of anecdotal evidence of a more severe downturn.

The final GDP figures were expected to show a contraction of 6.6 per cent, but the results signal that a deeper contraction could be coming this quarter. The revision was due to a draw-down of inventories and a slowing of construction and exported services. The downgrade was blunted by reduced imports, an uptick in exported goods and an infusion of government spending.

A weakened US economy pulled corporate profits down by 16.5 per cent, or $250.3bn, in the fourth quarter of 2008 from the third, the biggest drop since a decline of 16.9 per cent in the same period of 1953. According to economists at Goldman Sachs 70 per cent of this decline was due to write downs of assets in the financial sector.

The decline in corporate profits also sapped government coffers, as taxes paid on corporate income fell by 33.1 per cent.

“All the incoming data suggest that the economy will contract by a staggering 7 to 8 per cent in the first quarter, before the economy begins to stabilise,” said Nariman Behravesh, chief economist at IHS Global Insight.

Economists predict that the impact of the $787bn government stimulus package will not be felt until the second half of this year and that the economy could contract by another 6 per cent in the second quarter before flattening. The US government’s 10-year budget outline unveiled last month projected that the economy would contract by 1.2 per cent in 2009 before rebounding to 3.2 per cent growth in 2010. The Congressional Budget Office, however, found those estimates to be exceedingly hopeful.

Separately on Thursday the labour department said that new jobless claims climbed by 8,000 last week after easing in the second week of March. Initial claims rose to 652,000 from a revised 644,000 the week before, disappointing consensus estimates of 650,000 new claims.

Meanwhile the number of people continuing to claim unemployment benefits through the second week of March rose by 122,000 to 5.56m, the highest total since tracking began in 1967.

The insured unemployment rate rose from 4.1 per cent to 4.2 per cent, the highest level since 1983, while the four-week average of weekly jobless claims fell back last week to 649,000, retreating from a 27-year high the week before.

“There is no sign of recovery here, and claims are usually one of the very first numbers to turn,” said Ian Sheperdson, chief US economist at High Frequency Economics.

In February the unemployment rate jumped from 7.6 per cent to 8.1 per cent, its highest level since 1983, as the number of jobs lost reached 651,000. Economists expect that another 700,000 jobs could be lost this month and that the official employment report next week could show the jobless rate reaching 8.5 per cent.

In spite of Thursday’s grim data, recent figures have shown signs that the US economy could be starting to stabilise.

On Wednesday the Mortgage Bankers Association said that applications for US mortgages surged last week as banks lowered borrowing costs after the Federal Reserve’s decision to buy Treasuries pushed interest rates to record lows. Sales of new homes rose for the first time in seven months in February as falling prices began to lure buyers to the market and companies have finally begun to increase spending on durable goods.

“The slight improvement in the data will not prevent another big contraction in first quarter real GDP,” Mr Behravesh said. “On the other hand the worst of the worst is probably behind us.”









Glimmers of hope for a feeble U.S. economy
By Jack Healy
Copyright by The International Herald Tribune
Published: March 25, 2009
http://www.iht.com/articles/2009/03/25/business/usecon.php


NEW YORK: During the worst economic downturn in a generation, some people in the United States are beginning to catch glimpses of an unfamiliar sight: causes for hope.

The banking system is still fraught, the U.S. economy is contracting sharply, and 600,000 jobs are vanishing every month. But other economic barometers have stabilized a bit and stock markets have surged about 20 percent during the past two weeks, kindling hopes among investors that the long-suffering economy might finally be searching for a bottom.

Two new reports from the housing market and manufacturing sector underscored those fragile wisps of optimism Wednesday.

Factory orders for goods like metals, machines and military equipment rose last month after six months of declines, the U.S. Commerce Department reported. Those orders increased 3.4 percent in February after a stark 7.3 decline a month earlier.

Orders for machinery, transportation equipment and computers and electronics were all higher than the month before. Economists had expected a 2.5 percent decline.

The Commerce Department also said Wednesday that sales of new single-family homes rose 4.7 percent in February, a welcome sign of life for the foundering U.S. housing market. Home builders have cut back significantly on new residential development as they struggle with lower demand, tighter credit and a flood of cheap foreclosure properties.

"You don't want to make a trend out of any one month," said Adam G. York, an economist at Wachovia Economics. "But we'll take the good news where we can get it, and here and there we're seeing some smatterings of less-bad economic data."'

Investors on Wall Street pushed stocks higher in morning trading, though the gains had faded by mid-afternoon, when the Dow Jones industrial average was off 76 points, or about 1 percent.

The economic data released Wednesday were the latest in a series of less-than-terrible reports that have offered a break from months of relentlessly bad economic news.

Earlier this week, an industry group reported that sales of previously owned homes rose 5 percent last month. The government reported Tuesday that its barometer of home prices rose in January after 10 months of decline.

Earlier this month, the government reported that consumer prices were stabilizing slightly, cooling fears of deflation and that retail sales in February had fallen by less than expected.

Economists caution that many of these monthly statistics are extremely volatile, and that a one-month increase does not represent anything resembling a turnaround. Even if the economy is beginning to bottom out after slipping into recession in December 2007, hitting a floor does not presage any return to growth.

"Is it possible the economy has bottomed? Absolutely," said Russ Koesterich, head of investment strategy at Barclays Global Investors. "Would it be reasonable or rational to expect a strong recovery? I don't think so."

Given the scale of the problems facing consumers, homeowners, the financial system and the U.S. government, analysts are expecting a tentative L-shaped recovery in stock markets and the broader economy, rather than a V-shaped rebound.

Also, economists say that the details of "better than expected" economic numbers provide little cause for celebration.

The bounce in durable-goods orders followed large downward revisions to January data. And even with the 3.4 percent gain in February, orders for durable goods were down 28.4 percent from a year earlier, the government said.

And economists said that forward-looking indexes of manufacturing activity are still bracing for months of further declines as businesses cut jobs and capital spending in an effort to survive the broad global downturn.

"The underlying state of industry is still deteriorating," Ian C. Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to investors.

Still, some economists say that depressed industrial activity would probably pick up later this year and into 2010 as projects from the government's $787 billion stimulus package get under way.

"The February report on durable goods demand is the latest in a recent series of data releases which suggest that the recession-battered U.S. economy may be close to, or at, a business cycle bottom," Cliff Waldman, an economist for the Manufacturers Alliance, wrote in a note.