Wednesday, October 10, 2007

Little Bits and Pieces of the News Are Signalling a Weaker Economy

In response in yesterday's post concerning the case for no recession, for which I received some angry comments and e-mails, I would like to counter this argument with little bits and pieces of the economic news that make a case for atleast a weaker economy if not a recession.

From an interview with head of YRC Worldwide (formerly Yellow Roadway), published by

New York and most of the world get fixated on the credit crunch, since there's a tendency to be mesmerized by the financial markets. But underlying that is the real economy, which is the movement of goods. That economy is driven by people making and shipping stuff. They are not making and shipping as much [right now], and we see that every day.

How is the holiday season shaping up?

We've got a window now of about ten weeks or so where we should really see a big increase in shipment volumes as we get ready for Christmas. We have not seen that, and that's a concern. Last year's inventory buildup for Christmas was lower than historical standards, and the season ended up okay - not terrible. This year you have some easy comparisons, so you would expect to see more of a preholiday inventory buildup, but we have not seen that. Maybe it's coming later. Maybe it's not coming.

Comments from the WSJ Economics Blog concerning the Fed minutes on future corporate spending.

Businesses are expected to scale back their capital spending due to more modest sales gains and financing conditions becoming “a little less accommodative,” Federal Reserve staffers projected ahead of the central bank’s most recent policy meeting.

Economic growth forecast for the world was lowered as western economies will struggle in the rest of 2008 and 2009. From

. . . . The new global forecast was down by 0.4 percentage point from the 5.2 percent predicted in July, before global financial markets were shaken by the fallout from the subprime mortgage lending crisis in the United States. The crisis has sparked a credit squeeze, raising the cost of borrowing.

The IMF will also cut its growth forecast for the United States to 1.9 percent from 2.8 percent previously, and for Canada to 2.3 percent from the earlier 2.8 percent, the person said. The euro zone - the 13 nations that use the euro currency, including Germany and France - is now expected to post growth of 2.1 percent in 2008, down from the 2.5 percent forecast earlier.

Europe's largest economy Germany should see 2 percent growth next year, down from the previous 2.4 percent forecast. France should also see 2 percent growth, compared with the 2.3 percent predicted previously, the person said.

The IMF also forecasts that China's surging economy will grow by 10 percent in 2008, down from the previous 10.5 percent forecast, the person said.

IMF Managing Director Rodrigo Rato had said last month that the fund would likely lower some of its 2008 economic growth forecasts to reflect the impact of financial market turbulence. He said then that its 2007 forecasts could also be revised downward.

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