After A Run Of Gloomy Economic News

By Author: diandian
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All eyes are on the Federal Reserve this week. After a run of gloomy economic news , there is great interest in whether America's central bank will cut interest rates when it meets on November 6th. Man] economists think the case for a rate cut has grown with each statistical setback.

On November 4th, the Commerce Department issued figures showing that factory orders fell by 2 .3 % in September, after a 0.4% drop in August. Big Replica Cartier Watches falls in aircraft and communications- equipment orders were largely responsible for the drop. This is the second sign of manufacturing weakness in as many working days. On November 1st, the Institute for Supply Management said its index of manufacturing business conditions had dropped to its lowest level for nearly a year, and showed that the sector was contracting. On the same day, it emerged that unemployment in America had crept back up to 5.7 % .

Time to panic, then, or at least dust off those doom-laden predictions of a double-dip recession? Hardly. GDP may have grown a bit more slowly ...
... than people thought, but plenty of countries will be looking wistfully at the pace of American economic expansion this year. Even with the widely expected deceleration of growth in the current quartet—few expect much more than 2% at an annual rate—the world's largest economy is still a long way from contracting.

One factor behind disappointed expectations of America's performance could be the behaviour of consumers. The American addiction to shopping has sustained the economy for so long that some economists may be taking it for granted. Last year's recession was the mildest on record, thanks in no small part to consumer reluctance to stop shopping, even while business confidence and investment were collapsing. Consumer demand was a key factor in pushing up GDP growth in the third quarter.

Lately, though, there have been signs that consumers might be running out of steam. On October 25th, figures showed durable-goods orders fell sharply in September. Four days later, survey results from The Conference Board, a private organisation, showed consumer confidence falling steeply, to the lowest level for nine years; it was the second-biggest one-month fall since 1990. Meanwhile, there is anecdotal evidence that car purchases—which have kept consumer demand relatively buoyant for much of the past yeai—might be tailing off.

Confidence that the economy, though slowing, will not slide into another recession is bolstered by confidence that the Federal Reserve, America's central bank, will act to prevent that. When the Fed's chairman, Alan Greenspan, first realised that the economy was heading for the rocks in early 2001, he and his colleagues acted quickly to cut rates and minimise the damage. What Mr. Greenspan called his aggressive monetary policy—11 rate cuts in 12 months—was put on hold in December last year. But the Fed has repeatedly made clear that it would respond to signs of further slowdown.

An interest-rate cut on November 6th is not a foregone conclusion. But an increasing number of economists expect it. So do the financial markets—the futures market appears to be assuming a cut of one-quarter of a percentage point. Some Replica Omega Speedmaster would have preferred an earlier cut. But with interest rates already down to 1.75%, the Fed's room for maneouvre is limited. The closer rates come to zero, the less impact they are likely to have, which is why the Fed will not want to use up what ammunition it has left before it is convinced it needs to.