buckle up and hunker down

Posted on February 15, 2008

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Get ready for a rough ride ahead.

Put away your credit cards, eat out less and keep your car in the garage when you do go out.

New data shows that the US economy has entered a dark tunnel, with no clear end in sight yet, as a spate of gloomy data hit the streets at the same time today, bringing little cheer to this unseasonably cold winter and holiday weekend. The debate is whether the trip there would be a quick one or long-drawn.

While consumer confidence plunged as expected, its rate of decline took even pessimists by surprise. The widely-watched University of Michigan index of consumer sentiment dived 11 per cent from the previous month to 69.6, to hit its lowest level in 16 years. People are similarly expecting lower income and more lay-offs this year. University of Michigan says this sort of reaction has not happened since the recessionary years of the previous decades, and is usually a harbinger of tough economic times to come.

Ominously for matters of economic and consumer confidence, 86 per cent of consumers surveyed say they feel that the country is already in the midst of a recession. Not a good sign, since consumer consumption is the engine of the economy, contributing around 70 per cent of the gross domestic product. This aspect has bailed out the economy countless times and its decline is a worrying sign.

The lack of confidence isn’t all imaginary on consumer’s part.

The price of imports, such as for food, energy and other commodities rose 13.7 per cent in January from a year earlier, the biggest increase since the Labor Department began keeping records in 1982. Month-on-month, it advanced 1.7 per cent.

Oil prices continue to show no signs of relenting, with the price of light, sweet crude oil gaining another 4 cents to reach $95.50 a barrel this afternoon on the New York Mercantile Exchange. That means consumers will continue feeling the pain at the gas pumps – the price of imported petroleum surged by 5.5 percent in January and was up 66.9 percent over the past 12 months, the biggest 12-month increase since October 2004.

According to the Empire State Manufacturing survey, which gauges business conditions in the state of New York, its index posted its biggest monthly drop into negative territory in February, to minus 11.72 from plus 9.03 in January, the weakest since April 2003. That is due to a slump in orders and payrolls.

Only one little spark stands out from all the declines, the Federal Reserve said industrial production figures grew slightly by 0.1 percent in January, matching the December increase, in line with economists’ expectations.

There has already been a quarter of negative economic growth in the last three months of 2007, at 0.6 per cent. If the first three months of the year continue along that trend, the economy would officially be in a recession.

Although the Bush administration is putting a lot of emphasis on the $170 billion stimulus package just passed as a way to help the economy, and the Federal Reserve is ready with more interest rates cuts, it remains doubtful if those measures will be enough to stem the tide of a weakening economy.

Along with the larger problem of failing companies and markets, such as banks, the debt market and now bond insurers, there is a perception that not enough appreciation nor attention has been paid to the looming problem and that is now ham-stringing the administration from doing more. So take care of yourself and sock some away for the bumpy road ahead, if it isn’t already too late.

 

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Posted in: business, economy, US