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(07/25/02 8:23pm)
Consumer confidence and spending is the gauge for the short-term condition of prevailing business. The Consumer Confidence Index for the September stood at 97.6, down from 114.0 in August. 16.4-point drop within a month is the largest drop since October 1990. Although the index result is slightly different from the survey conducted before the terrorist attacks, the big picture of a downward trend has been consistent. \nConsumers' general expectations of economic activity during the next half-year are even more devastating. According to research conducted by the Conference Board, a non-profit worldwide research institution, the percentage of consumers that think business conditions will worsen has increased to 15 percent from August's 10.7 percent. The number of consumers anticipating their family income to increase has declined to 21.1 percent from 23.2 percent in pervious month. Also, the number of consumers expecting better business conditions six months from now has decreased to 22 percent from 27.7 percent in August. \nThe Conference Board interprets the Consumer Confidence Index slump as robustly fueled by sluggish labor market conditions and deteriorating business conditions. \nDuring the week ending on Sept. 22nd, the number of seasonally adjusted initial claims to the U.S. Department of Labor rose to 450,000, an increase of 58,000 from the previous week marking an unemployment rate of 4.9 percent. \nOn September 17th, the Federal Open Market Committee decided to cut the federal funds rate by 50 basis points to 3 percent, the eighth consecutive rate cut this year. According to a press release dispatched after the decision, the institution revealed its intention to pump an uncommon volume of liquidity into the financial markets.\nThe Federal Reserve anticipates these actions will stimulate consumer spending and investment. With these actions in mind, it had confidence in the long-term perspectives of US economy. \nFurther more, it will have another meeting Tuesday to decide whether to cut interests rates further. This would be the ninth consecutive rate cut of the year and create the lowest rates since 1963.\nAlan Greenspan, Chairman of the Federal Reserve, was still confident that the terrorist attacks would only have a temporary effect. \n"For the long term, prospects for continued rapid technological advance and associated faster productivity growth are scarcely diminished," Greenspan said during his speech to the Committee on Banking, Housing, and Urban Affairs in the Senate, Sept. 20. \nIndeed, there are many who believe the long-term U.S. economy will not be hindered by the effects of September's terrorist attacks. \nThe CEO of Wells Fargo Investments, LLC, and President of Private Client Services said Monday that despite the national tragedy, he believes the U.S. economy is the safest place in the world to invest and that stock prices will be higher in the next 12 to 24 months.\nStill, some people disagree and believe that consumers are no longer the driving force behind the U.S. economy that they once were. \nLynn Franco, Director of The Conference Board's Consumer Research Center, is still skeptical about further interest rate cuts.\n"As the economic ramifications of Sept. 11 continue to reverberate in the coming weeks and months, and the number of layoffs continue to rise, the economy faces tougher times ahead. While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case."\nBill Witte, an IU economics professor, said it is impossible to predict the full impact of the attacks. \n"There is enormous amount of uncertainty for the US economy." \nWitte suggested that in October, the unemployment rate, stock market performance, and other economic data would show how the U.S. economy would develop in the near future. Since terrorist attacks on Sept. 11 occurred in the middle of the month, Witte concluded that the September economic data are not enough to measure the precise impact on the future economy.
(07/25/02 8:23pm)
The Conference Board, a non-profit worldwide research institution, operates a Consumer Confidence Index that is one of the key economic indicators for the U.S. economy. The index represents both consumers' perceptions of the present economic situation and their expectations for the economic conditions six months in the future. But, because the index attempts to gauge consumer psychology, it tends to be more volatile and exaggerated.\nAccording the Conference Board's study based on U.S. economic history, there is a precedent for consumer confidence falling during a national tragedy such as the attacks Sept. 11.\nThe study is supported with references to events like the Cuban Missile Crisis, President Kennedy's assassination, Iraq's invasion of Kuwait, and the Oklahoma City bombing. \nDeteriorating consumer confidence reports, coupled with record unemployment rates, are continuing to hurt the U.S. economy. \n"I think it is difficult to gauge a psychological construct like confidence," said Bill Witte, a professor of Economics.\nBut, Witte stressed that the current consumer confidence free fall has probably, "already resulted in 200,000 unemployed in transportation-related areas, plus a substantial disruption of the financial industry."\nOther transportation industries are also laying off employees. Many major auto companies' layoff reports and cost reduction plans are a result of plummeting sales figures. They represent a strong downward trend in the economy. \nFreightliner LLC, the North American truck subsidiary of DaimlerChrysler Commercial Vehicles Division, recently unveiled restructuring plans as a result of expected losses in 2001. The restructuring plans are cost saving plans, which include 2,700 additional layoffs, five percent salary cuts for hourly employees, and changes to welfare and health benefits. The job cuts have resulted in a 47 percent reduction in the company's work force.\nThe Freightliner case is typical. Many economists have no doubt the Sept. 11 attacks made a major contribution in accelerating the massive layoffs. \nDr. Sung Won Sohn, COO for Wells Fargo, said, "the economic damage from the attacks is mounting and massive layoffs will continue throughout the economy." \nSeveral important research conclusions explain why experts agree. \nAccording to the Institute for Social Research, a nationally respected University of Michigan social science research laboratory, 61 percent of those surveyed as consumers now anticipate the unemployment rate to rise to about six percent by early 2002. \nRichard Curtin, an economist from the University of Michigan, said the consumers' average anticipations make an accurate forecast for actual changes in the unemployment rate generally three quarters in advance. \nIn addition to the unemployment rate expectation, other research data indicated, "A comparably pessimistic outlook has only been recorded in the University of Michigan's Surveys of Consumers during the recessions of the 1970s, 1980s and 1990s." \nThe current seasonally adjusted unemployment rate is 4.9, the highest since September 1997.
(07/25/02 8:23pm)
In the midst of pessimistic economic expectations, rising unemployment rates and sluggish capital spending, the government is trying to find ways to boost consumer expenditure and investment in business. Republicans and Democrats are wrangling over the details of the fiscal stimulus package. But since the federal government has a major budget surplus, the stimulus package is expected to be relatively large and would have a huge impact on the economy. Analysts expect the amount of money that the government spends could top $200 billion in 2001.\nConsumer spending and consumers' general economic expectations have further declined in recent weeks.\nRichard Curtin, the director of the Institute for Social Research, a social science research laboratory at the University of Michigan, said on the insititution's Web site, "The majority of consumers still expect bad times in the economy as a whole during the year ahead."\nSixty percent of consumers expect the unemployment rate to increase within a year, according to an October ISR survey. The current unemployment rate is 5.4 percent, up from 4.9 percent in September.\nAccording to the institution, during the last 50 years, there were two occasions when more than 60 percent of consumers expected the unemployment rate to increase during the year ahead. In both cases, the expectation came true with an increase in actual unemployment rates. \nThe overall consumer sentiment index stood at 82.7 in October, compared to 105.8 last year. The consumer expectation index, which analyzes leading economic indicators that measure how people think or feel about the future of the economy and their personal finances, was down 25.1 percent from last year. The two indicators are at their lowest levels since the early 1990s.\nThe Conference Board's consumer confidence index for October stood at 85.5, a 12 percent decrease and a fall from September's 97 points. The index is at its lowest level since 1994. \nLynn Franco, one of the directors of the Conference Board, said on the network's Web site, "The economic outlook is becoming increasingly pessimistic, with consumer sentiment continuing to fall." \nThe main reason for the increasing pessimism is the result of widespread layoffs and rising unemployment. \nThe public's confidence in improving economic conditions is much weaker than a month before. The ISR survey's report reveals, "While consumers expected the pace of growth to improve after the start of 2002, the majority did not anticipate that the pace of growth would be sufficiently strong to restore good times in the economy as a whole." \nA month ago, Bruce Steinberg, the chief economist at Merrill Lynch, said on the Merrill Lynch Web site, "The current combination of fiscal and monetary stimulus is unprecedented. It should an inevitable lead to a very strong rebound in economic growth." \nBut last week he said, "It will be a more muted recovery"
(07/25/02 8:23pm)
Many economic analysts are hoping current retail sales levels and falling consumer spending only indicate a stalled economy and not a prolonged recession. But increased retail sales levels might only be a reflection of more aggressive automobile sales.\nRecently the Commerce Department released the October retail sales level. The level surged 7.1 percent. The 28.5 percent increase in auto sales was the major contributor to October's new retail sales record. The retail sales level excluding auto sales was only 1 percent. \n Briefing.com , a well respected web-based business environment analysis team, said that auto sales were the "swing factor" in this monthly figure.\nThe surge in auto sales is mainly due to the manufacturer's aggressive actions to lower the accumulating old inventory levels in the fear of pessimistic future sales expectations. Recently, many auto retails are offering sales with extreme payment options of around zero percentage financing. \nSome experts expect that this unusual phenomenon in auto sales would only be temporary. \n"The auto aberration will fall off in December and the beginning of the next year's first quarter," said a report on Briefing.com \nThe 1 percent increase in retail sales gives a contrasting image when compared to recent levels of consumer confidence. Briefing.com said in its report that the retail sales increase does not indicate a recovery for the recession, but rather indicates delayed consumers' purchases for September. \nRecent bullish performance in the stock market might indicate an economic recovery from recession is near at hand. This expectation is especially emphasized by the investment banking industry encouraging more investments from clients and potential investors. \nMerrill Lynch believes this is currently the middle point of the recession, and the stock market is likely to perform well. Recently Merrill Lynch disclosed historical data on their Web site that supports their claim that markets historically start to pick up around the middle of a recession.\nMerrill Lynch also said in its Weekly Economic & Financial Commentary, "monetary policy operates with a lag of about nine months. It would only be around this time that the Fed's initial rate cuts would begin to impact activity."\nInterest rates were recently lowered to a 40 year low.\nStandard & Poor's Special Report said, "(The economy is) closer to a recession now and thus closer to the beginning of a new expansion phase. The aggressive interest cuts should start boosting the economy soon."\nBut many investment banks have been cutting spending and finishing mergers and acquisitions in order to grab market shares during the tough economic environment. Business Week recently reported several large investment banks are planning to layoff 10 percent of their workforces.\nHorst Köhler, Managing Director of the International Monetary Fund, said Thursday, "There is still the uncertainty about how layoffs will further influence business activity. So altogether there are good reasons to predict a downturn in the U.S. economy. But there are now even more good reasons to believe that a recovery will take place"
(07/25/02 8:23pm)
Many economists and investors agree the economy's lowest point was the last year's fourth quarter and expect some recovery over the new year. But many argue that the pattern of the recovery will be somewhat different from business cycle recoveries since World War II. \nThe assumption is based on the unprecedented economic boom of the 1990's, which was partly caused by over-heated investments. \n"This recession differs considerably from those in the past in that it is a business-led recession generated mainly by the consequences of a boom-bust cycle in business investment and the accompanying decline in equity prices," said William C. Dudley, Director of the Economic Research Group at Goldman, Sachs & Co., in BusinessWeek. \nOver-heated investment caused the Japanese economy to fall into a decade-long slump. Even though related factors caused the current U.S. situation, economists are reluctant to call the U.S. situation a "Bubble Economy" (another name for an over-investment phenomenon) because they fear relating it to the Japanese situation. \nDue to over investment and capital spending during the unprecedented economic boom of the 1990's, manufacturing industries these days need to slash excess production capacity and inventories. Excess of capital equipment, inventory and labor force cause abundant fixed cost structures that hinder the profit margins of companies. \nSince the excess operation caused too much inventory that is not likely to be sold during this down turn, companies are trying to reduce them with many different discount offers or financing offers to the consumers. Recent efforts to reduce inventory are the result of a remedy to the excess production. Zero percent financing of auto sales in an effort to get rid of old models is a classic example. \nTrimming excess capacity structure is under way in labor forces too. Recent big layoff news is consistent and expected to continue until the first quarter of the new year at least. December unemployment rate rose again to 5.8 percent from 5.6 percent from the previous month. Specifically, the durable goods manufacturing sector's unemployment rate was one of the major factors for the increased unemployment, which has increased stiffly to 7.2 percent in December 2001 compared to 5.8 percent in December of 2000. \nThe Conference Board's Help-wanted Advertising Index continues its declining pattern. The index is a key barometer of America's job market because it measures help-wanted advertising volume in 51 major newspapers across the U.S. every month. It is now 45 points, which is one point lower than the previous month, and 30 points lower than it was one year ago. \n"The overall level of the Help-Wanted Index is as low now as it has been in almost four decades. The trend in job advertising suggests that new hiring will be kept to a bare minimum through early 2002," said Conference Board Economist Ken Goldstein in a Dec. 27 press release.\nAlso, industry production level for the manufacturing sector has been declining with consistency for more than a year since June 2000. June 2000's level was 154.32. However, Nov. 2001's level was 141.68. \n"Manufacturing activity weakened further in nearly all regions in late October and the first half of November. More than two-thirds of the districts reported that new orders and production decreased or grew more slowly," the Federal Reserve Board's Beige Book reported last week.\nCapacity utilization now stands at 73 percent. Capacity utilization is the percentage of U.S.'s production capacity that is being utilized. \n"After consecutive decreases of 0.9 percent in September and October, manufacturing output declined 0.2 percent in November. The overall factory-operating rate slipped 0.2 percentage point to 73.0 percent, a level 6.2 percentage points below its year-ago level and 8.1 percentage points below its 1967-2000 average," the Federal Reserve Statistical Release said. \n"Weakened global demand for capital goods adds to the lack of domestic capital spending tied to the profit recession and the exploded investment spending bubble. The result is tremendous manufacturing slack and the lowest capacity utilization rate in two decades," said Briefing.com, a group of Internet based economic analysts. The decline is expected to continue until early 2002. \nAlthough economists generally agree that the worst part of this recession is over, and the recovery is under way, it will be slow and weak. The main reason is the manufacturing industries' dieting process. This process is an effort to get rid of the fat they accumulated during the 1990's exuberant economy. The strong recovery may not be visible until most manufacturing business sectors finish trimming over capacity structure as the result of the excess capital spending. \nMost of economists lowered 2002 expectations after having seen continuous shrinkages of the manufacturing sector. They generally lowered GDP growth for the new year from the 2002 forecasts done three months earlier. \n"In the first quarter of 2002, the forecasters expect the economy to grow at an annual rate of just 0.1 percent. These forecasts represent sharp downward revisions from the forecasts of three months ago, when the forecasters anticipated growth at an annual rate of 2.8 percent in the fourth quarter and 2.7 percent in the first quarter of 2002," according to the 29 forecasters surveyed by the Federal Reserve Bank of Philadelphia.\nIncreased pessimism on the unemployment front accompanies the downgraded outlook for economic growth. The forecasters now expect the unemployment rate to average 4.8 percent in 2001, up from 4.6 percent in the last survey, and 6.0 percent in 2002, up sharply from 4.9 percent in the last survey. The forecasters calculate that the unemployment rate will rise gradually over the next four quarters reaching a peak of 6.1 percent in the third quarter of 2002 before falling to 5.9 percent in the fourth quarter of 2002.\n"Since 1945, growth of 5 to 7 percent has been common in the year following a downturn. But there are good reasons why this particular recession could end rather sluggishly," said staff writers in the December issue of The Economist.
(07/25/02 8:23pm)
Some lawmakers and experts think that it is not only the corporations that are to be blamed for recent scandalous accounting transactions, but also accounting rule making process or makers. \nTelecommunications giant WorldCom, last week announced that it would restate $4 billion worth of expenses that resulted from fraudulent accounting entries. There is increasing news coverage of lawsuits from misled investors against corporations that provided fraudulent accounting statements. \nIn May, there was an extensive session in the House Committee on Financial Services, called "Corporate Accounting Practice: Is there a Credibility GAAP (General Accepted Accounting Principle)?"\nDuring the session, accounting professionals and experts from different areas -- from education to auditing firms -- agreed the problem was not only the corporations, but also the accounting standard setters and regulators. \n"Throughout its history, the Securities and Exchange Commission (SEC) has relied on the private sector to establish accounting standards. We will explore today whether that policy should continue," Rep. Paul Kanorski (D-Penn.), the ranking member, told the committee. \nCommittee chairman Michael Oxley told the committee that fraudulent financial restatements have caused problems for many different areas of society.\n"There have been too many restatements of financial statements, too many SEC investigations and too many pension plan losses for us to not dig further into this area," Oxley said. \nThe problems Oxley touches on are all recognized as results of fraudulent corporate accounting practices.\nThe SEC has authority under U.S. securities law to set accounting standards for public companies. It also has power to enforce its accounting standards. The Financial Accounting Standard Board (FASB) works with the SEC to set accounting methods while reviewing current accounting issues, but it does not have the responsibility or power to enforce its standards. The FASB simply helps the SEC establish accounting and reporting standards. \nBut in the midst of the constant corporation accounting scandals, the SEC and other accounting related institutions such as the FASB are drawing considerable fire from critics. \nConcerns over inefficient FASB practices are being recognized throughout the last decade. But they are highlighted recently in the wake of the collapse of major U.S. corporations after accounting frauds were revealed. \n"I have two big critics for (the) FASB," said Dave Greene, chair of the IU system and accounting graduate program. "One is that they are too slow. Sometimes it takes more than 10 years to come up with a decision since the inception of the problem … accounting rules have to be responsive to changes of business world." \nAnother major concern Greene has over accounting rules is independence. Many of the funding resources available to the FASB come from voluntary contributions. This fund structure may create pressure that can hinder the FASB from establishing unbiased accounting standards. \n"(The) FASB is becoming increasingly politicized," Greene said. "Lobbying (the) FASB is common, hence biased accounting, auditing standards can be possible." \nAs a result, many of the professionals and experts expect government to come up with the idea of creating a separate entity that would control the ethical aspect of the accounting practices. Most of them think the SEC, the FASB and related accounting institutions are not enough to fix the expanding fraudulent accounting practices. \nWhen it comes to being cynical about the current accounting rule making institutions, many Democrats and Republicans agree that the new policy is eminent.\n"I also think changes are occurring in every board room, on every audit committee and with every accounting firm in America," Sen. Phil Gramm (R-Texas) said in a June 18 mark-up of accounting reform and investor protection legislation. "But I do not believe that is enough … I believe we should pass a bill setting up an independent ethics committee that will oversee and enforce the highest standards of ethics in accounting." \nA financial accounting statement is a company's resume. Based on the financial accounting statement, investors make decisions whether to participate or partially own the company by becoming a shareholder. Hence, the role of the financial accounting statement is extremely important in the rapidly developing business environment. \n"Financial statement audits are considered an essential feature of providing reliable financial information to our capital market," said William Holder, accounting director at the University of Southern California, during his testimony before the committee in May.
(07/25/02 8:23pm)
The insurance industry has been regulated under states' sovereignty for more than a hundred years. Although many people still acknowledge that it is best for states to hold the control over the insurance industry, others think it is time for the federal government to intervene in the industry. \nCurrently states have control over insurance policies and regulations. But individualized state insurance policy and regulation cause duplication, delay and inconsistent and conflicting requirements. Especially if an insurer wants to sell its product across the nation, hassles and costs to satisfy unique regulations of each state cause delay and expense that would ultimately disadvantage its customers and policyholders. \nNon-uniform regulations and multiple enforcement requirements among states cause inefficiency and duplicate regulation. Many experts and professionals agree that renovation in the insurance regulation is eminent. \n"No matter what side one takes in this long-standing debate, it has become clear to me that this is no longer a question of whether we should reform insurance regulation in the United States," said Paul Kanjorski, ranking Democratic member, during the "Third Hearing on Insurance Regulation and Competition for the Twenty-First Century" on June 18. \nDuring the last three meetings at the House Committee on Financial Services, it became clear that the current issues over the insurance industry are not merely about technical improvement in regulations. It involves redefinition for determining the balance between the federal government and states. Hence, the meetings over the insurance regulation included intense debate over who -- states or the federal government -- ought to have a controlling authority over the insurance industry. \nCertain sections of the insurance companies who are hurt by the current state regulations are anticipating optional federal charter. That way, they can choose to follow a unified regulation throughout the nation, which is controlled by one authority, federal government. \n"One goal (of the optional federal charter) is uniformity, consistency and efficiency of regulation and supervision. A federal charter would provide insurers and producers with 'one stop' regulation and supervision, rather than the patchwork of regulation and supervision by multiple jurisdiction as is the case today (of the state charter)," according to the Financial Services Coordinating Council's statement for the House Committee. \nThe optional federal charter gives freedom for an insurance company to choose from whom, the federal or state, to get license permission and be regulated from. \nBut several insurance trade groups and state insurance regulators are opposed to the idea of optional federal charter and try to justify the current multi-state regulations and systems. Their argument is that the multi-state regulation is still sound but just needs some improvement. \n"I came here today to speak in defense of the proposition that a reformed system of state insurance regulation is superior to an unproven system of federal regulation," said Wayne F. White during the testimony for the House Committee on behalf of The National Association of Mutual Insurance Companies. \nFurthermore, they doubt the integrity and credibility of the federal government, arguing that the federal government would eventually take over the control with its almighty power. Their concern is that the federal government's control would start as an optional choice but it can over take states' sovereignty gradually. \n"Let me ask you a question. Did you ever see the federal government stay optional? As soon as they step a foot in the door, they will take over. It is very natural for the federal bureaucracy to do so," said Russ Hamilton, senior administrator of First Investors Corporation's Indianapolis regional office, which offers various life insurance products.\nHistorically, the federal government's initial intervention in the name of "optional" or "support" grows to be a binding force that hardly stays optional down the road. \n"Speed limit regulation is a good example. The federal government would force speed limit to 55 miles when the state wants it to be 70. If the state doesn't pass the law with 55 miles, then the (federal government) will stop supporting financially for the future road construction or repair," said Eric Rasmusen, professor of Business Economics and Public Policy at IU. "You can obviously see the trend in the primary and secondary education, too. Federal regulation is increasing. \n"If the state doesn't like the federal government, then the federal government will cut the financial support"
(07/25/02 8:23pm)
The central bank of the United States is not sure about a strong economic recovery from the recent recession. The judgment about the economic condition is largely due to a decline in current consumer confidence. Further, the central bank worries about the future labor market that can further deteriorate the consumer confidence that was already betrayed by the fraudulent and deceptive corporate practices. \nOn July 16, Alan Greenspan, chairman of the Federal Reserve Board, reported the semiannual monetary policy to Congress. The semiannual monetary policy is for the Federal Reserve, as the central bank of the U.S., to review and evaluate current economic conditions. \nGreenspan describes the recent recovery from the recession as "less vigorous than in the past." \n"The pace of forward momentum (concerning U.S. economy) remains uncertain," Greenspan said. Concerning consumer spending, "a surge in household spending early in this recovery is unlikely," he said.\nGreenspan blamed current scandalous accounting practices for discouraging trusts and integrity of the U.S. economy. He recognized several deceptive practices from corporate CEOs are "highly destructive to free-market capitalism and, more broadly, to the underpinnings of our society." \nSince around the period of the Enron accounting scandal, there has been extensive and increased coverage concerning corporate CEO's misconduct. \n"Everyone is focusing on Wall Street business scandals," said Willard Witte, an IU economics professor. \nThis misconduct includes inappropriate relationships between accountants and CEOs that deceive their investors in order to scrap their own interest. Investors heavily depended on manipulated financial accounting statements for estimating the performance of the corporation.\n"An infectious greed seemed to grip much of our business community," Greenspan said.\nCurrent negative media coverage resulting from the "infectious greed" in the business world will further deteriorate consumer confidence. Consequently, consumer spending is not likely to surge in the near future. In general, a rise in confidence is consistent with stronger consumer spending.\n"In the short term, consumer sentiment is very much influenced by media," Witte said.\nConsumer spending fuels U.S. economy and its role is especially important during the recovery period. \n"The economic recovery is being powered by consumers as the plunge in business investment has stabilized but hasn't turned stronger," according to www.briefing.com, a Web based economic analysts site. \nUncertainty or pessimism for the future U.S. economy is translated into lifeless business expansion.\n"Business sectors have been pessimistic about the economic outlook. Hence, they did not think that they would need to build new factories when they need to reduce current inventory with a pessimistic outlook," Witte said.\nDespite the fact that the manufacturing sectors are staggering during the recent recession, their productivity has been improving rapidly. \n"Indeed, despite the recent depressed level of investment expenditures, the productivity of the U.S. economy has continued to rise at a remarkably strong pace," Greenspan said.\nTherefore, the current manufacturing businesses in the U.S. are experiencing subdued expansion over improved productivity. This may cause serious problems in the labor market. Improving productivity can even replace workers for new machinery and technology, which will cause higher unemployment in the manufacturing industry. \n"In part, these increases in productivity reflect the very cautious attitudes of managers toward hiring," Greenspan said. \nDue to improvements in technology and intensifying competition, the manufacturing sector's productivity has increased dramatically even during the current recession. But, this means that the manufacturing industries do not need to hire extra workers in order to increase the outcome to accommodate the current mild economic recovery. Hence, many experts conclude that the future labor market is not likely to be promising. \nThese pessimistic predictions concerning employment can further contract consumers' spending. Consumer spending makes up about two-thirds of the U.S. economy. \n"(Consumer's confidence concerning) expectations (for the U.S economy marked) negative 2.6 points (that) tied to the continued decline in equities and weak labor market," according to www.briefing.com.
(12/10/01 3:52am)
Democrats and Republicans are wrangling over solutions for the current recession, and each party has its own ideas. \nRepublicans are concentrating on unemployment benefits and trying to encourage business investment and expansion with funds. Democrats are focusing on homeland security, aid and health benefits for the newly unemployed. \nMembers of both parties agree on a temporary reduction in taxes for new business investment by allowing faster first year write-offs for new equipment that would strongly encourage businesses to expand investments. Also, a tax rebate for low-income workers, and special benefits for the workers who recently lost their jobs. \nHeejoon Kang, professor of business economics and public policy, said, "Both of the stimulus plans will work and are necessary for the current situation." \nThe plans differ on how much emphasis and additional planning will be made on already approved agendas. Democrats heavily emphasize the extended unemployment and health care benefits for workers who lost their jobs because of the recession. \nAlthough the parties agree the stimulus package should consider both the unemployment caused by the recession and the Sept. 11 terrorist attacks, the amount that they want to share is different. \nAccording to Joseph Guinto from Investor's Business Daily, Republicans want to share $10 billion for increased unemployment benefits and Democrats want to share more than $20 billion to increase unemployment aid. \n"The difference is how it would work," Kang said. "For example, the Democrat's ideas sound more likely to directly encourage consumer spending, which is a very short term perspective." Because the money is more directly supplied to workers who lost their jobs or whose bonuses are not as big as the year before, it can be used for necessity products to compensate lost or reduced incomes.\n"The Republican's idea will more likely encourage investment in business sectors, and it is a comparably more long-term strategy than the Democrats'," added Kang. \nIn a CNN report last week, President George W. Bush said, "In the long run, the right answer to unemployment is to create more jobs." Republicans argue that improvement in business will eventually create more jobs than the Democrats' temporary consolation for the workers. \nAccording to Investor's Business Daily, Glen Hubbard, chairman of the White House's Council of Economic Advisers, said Bush's proposed stimulus plan would boost Gross Domestic Product by 0.5 percent and create about 300,000 additional jobs within 2002. \nBut many experts agree that Bush's stimulus plan could be very stressful for states if the economy continues to deteriorate. In the Nov. 26 Businessweek, correspondent Howard Gleckman said, "States may be looking at a shortfall this fiscal year of up to $50 billion." \nBecause of the weak economy, state level tax revenues are lower than expected. Stricter security and anti-terror programs are causing states to experience vast pressure over budgeting. Since states have responsibility to balance their budgets, they are likely to increase state-level taxes that will nullify Federal-level tax cuts. Two weeks ago, Indiana proposed an urgent need to increase sales tax and income tax. \nAnother obstacle comes from consumer fear about the war in Afghanistan. People are much less likely to make decisions on big spending even though they have additional spending money from tax cuts. And current tax cut stimulus plans might not show immediate support unless there are significant signs of improvement in the business environment. \nPeggy Hite, professor of accounting, said, "the responses to any policy that initiated by government are likely to be less elastic (tedious) than the theory predicts because of the security issue that we are experiencing now. Henceforth, the recovery can be slower than expected"
(11/27/01 4:18am)
The National Bureau of Economic Research announced in a statement Monday that the U.S. economy has been in a recession since March. In NBER's statement, the Sept. 11 attacks were cited as a significant cause of the recession.\n"Before the attacks, it was possible that the decline in the economy would have been too mild to qualify as a recession. The attacks clearly deepened the contraction," according to the statement.\nThe U.S. Index of Leading Indicators, a barometer of future economic conditions, increased 0.3 percent in October, raising hopes for a shortened recession. Still, many economists are careful to speak positively of recovery in the near future. October's increase is largely seen by economists as an offset effect from the 0.5 percent decline during September in combination with aggressive action on the part of the Federal Reserve, not a direct result of an increase in manufacturing activities or consumer confidence. \nOut of the ten components for the Index of Leading Indicators, those that represent manufacturing activities were still negative. Average weekly initial claims for unemployment insurance, average weekly manufacturing hours, and building permits all hurt the industry in October.\nBriefing.com, a Web based economic research and analysis team, recently released a chart that shows a correlation between consumer confidence/spending and unemployment rates. Both indicators show strong negative correlations, meaning a direct increase or decrease in one of the indicators causes the other to immediately act in the opposite way.\nConsumer confidence for October stood at 85.5 points, which is the lowest level since 1994. The consumer confidence index released by the Conference Board is a survey that asks questions about the labor market, business conditions, people\'s future economic expectations. The latest Conference Board survey reflects current deteriorating consumer expectations largely due to recent mass layoffs. \nThe full-time worker's unemployment rate currently stands at 5.4 percent for October compared to 3.8 percent one year ago. The part-time worker\'s unemployment rate currently stands at 5.6 percent for October compared to 4.5 one year ago. According to NBER, the current increase unemployment claims combined with a decline in industrial production are the true indicators of a recession.\nSome economists are brushing off optimistic economic outlooks as a result the major economic indexes. Sophia Koropeckyi, an analyst from Economy.com, said "consumer spending, the one pillar of the economy that has kept the economy afloat during the past year as business confidence and spending plunged, is likely crumbling. As consumers pull back, business confidence will only fall further."\nBriefing.com analysts also reported a dismal short term economic outlook. "The Federal Reserve's aggressive manipulations to the weak economic conditions will likely continue despite a couple of rebounds on major economic data and indexes, because the Fed historically believes that improvement in labor market conditions is the best indication of a recovery. However, current employment conditions do not show a bright picture in the near future. As a result, it is strongly expected that the Fed will make another interest cut before the year ends"
(09/17/01 4:40am)
Even after the shocking terror last week, economists' general concern was the consumer spending level. According to CNNfn.com, consumer spending fuels around two thirds of the economy.\nThe "psychological impact is what makes (this situation) highly unpredictable," Bill Witte, a professor of economics said. Any tragedy on the national level might influence consumer psychology and change the behavior of spending in the immediate future. But it is very difficult to measure how much correlation will exist between the tragedy and consumer psychology. In general, it is perceived reactions from the terrorist attacks will not have long-term effects for the U.S. economy.\nAccording to Harris Interactive's online poll of 4,610 U.S. adults conducted on the night of the attacks, about 51 percent of adults answered that stocks would not be a good investment for the next weeks and months because of Tuesday's events. Only 7 percent answered that it would be a good investment. \nWhen respondents were asked if they were planning to sell stocks because of the terrorist attacks, 99 percent answered "No." This could be understood to mean people generally don't think the attacks will have a long-term effect to the U.S. economy. \n"There may be the possibility of a stock market drop for the very short period as an effect of this tragic event," Witte said. "I would guess if this happens, the stock market may decline 7 to 8 percent early this week, but it should recover very soon. Maybe within a week or so." \nEconomists believe that if Tuesday's tragedy has any effect, it will be a negative one, especially since before the attack the U.S. economy had been weakened for several months. The U.S. economy was expected to slow down since Aug. 29, when U.S. Department of Commerce officials estimated a 0.7 percent increase for the second quarter. According to a recent USDC analysis, the real gross domestic product has declined from a 1.3 percent increase to a 0.2 percent increase for the first and second quarters of 2001, respectively.\n"The attack may cause a snowball effect," Witte said. Before the attacks, Witte thought the chances of the U.S. economy slipping into a recession by next year were around 25 percent. Now he estimates it is closer to 35 percent.\nOn Aug. 21, the Federal Reserve cut rates for the seventh time this year in order to encourage investment and boost consumer spending. The slow down in consumer and business spending and recent sluggish stock market news has been somewhat consistent. \nGenerally, experts agree with the idea that the Fed's seven consecutive interest rate cuts reduced the possibility of an economic recession.\n"People anticipate interest rates to be cut in such economic situations, which we call a reactive economic policy, sometimes (the Feds) have to follow the expectation the markets demand," said business professor Heejoon Kang. "The economic conditions could have been worse (were it not for the Fed's actions)."\nBut experts also show some concern over the Fed's aggressive interest cut. Business professor Craig W. Holden points out that "too much manipulation" may cause "people to make bad decisions. People can take out too many loans when they shouldn't because of the lowered interest rate."\nHe also said that many retired people who depend on interest returns may decrease their spending, which can have a negative effect on consumer spending.