For US, no news seems good
In the troubled US economy, even good news turns to gloom on closer inspection. Consumer spending rose 0.4% in March, the Commerce Department said last Thursday. On the face of it, this is good news as private consumption generates two-thirds of the country’s economic output and the figures showed that shoppers increased their spending by twice as much as had been expected. For the most part, however, consumers are shelling out more money not to buy more goods but because food, fuel, and other daily staples grow increasingly expensive.
Once the effect of inflation is taken into account, government statisticians said, the real rise in consumer spending amounted to a trifling 0.1% — half what economists had expected, and the fourth straight month of disappointment. On Wednesday, the government said the economy had averted recession, with gross domestic product (GDP) growing by the equivalent of 0.6% per year for the second quarter in a row. As with consumer spending, the news failed to inspire exuberance.
By the government’s admission, much of this growth resulted from the unintentional stockpiling, by businesses, of unsold goods. By contrast, corporate investment, a revival in exports driven by a weak dollar, and other aspects of the economy showed continued or new signs of weakness. Many economists now expect a negative GDP figure in the current, April-June, quarter. The Federal Reserve on Wednesday cited the economy’s weakness in announcing it was cutting the interest rate that banks charge each other for short-term loans by one-fourth of a percentage point, to 2%. This marked the seventh rate cut since last September, when the federal funds rate stood at 5.25%.
“Economic activity remains weak. Household and business spending has been subdued and labour markets have softened,” the central bank said in a statement explaining its decision. The cuts were aimed at spurring growth by lowering the cost of borrowing. The Fed hinted in its statement that it would hold off on further cuts, an indication it is growing increasingly concerned about inflation. Personal incomes have fallen behind rising prices and the personal savings rate, which measures savings as a percentage of after-tax income, slipped to 0.2% in March from 0.4% in February.
In addition to record fuel prices, consumers continue to struggle with a deepening slump in housing and jobs. Housing prices dropped by 12.7% in February from a year earlier, a closely watched industry survey revealed on Tuesday. This is the fastest pace of decline on record, according to the Standard & Poor’s/Case-Shiller home price index.
The finding will fuel economic anxiety because for many, the family home is their sole asset. Compounding its falling value is the rise in the number of homes heading into foreclosure as mortgage borrowers find themselves powerless to prevent lenders from auctioning off their homes. The number of properties that received at least one foreclosure notice in the first three months of this year rose 112% from the first quarter of 2007, as per the research group RealtyTrac, Inc.
The foreclosure figures suggest that heavily hyped efforts by lawmakers, mortgage lenders, and the Bush administration to help homeowners at risk of dispossession have had no significant impact. — IPS