Sun, Nov 03, 2002 page11

• Data shows US economy may stall

  • REUTERS
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  The US economy shed 5,000 jobs in October and gloom at factories deepened, leading economists to fret the recovery may be stalling and to wager the Federal Reserve will trim interest rates next week.

  The prospect of cheaper credit encouraged a stocks rally, but bond prices fell amid disappointment the case for an aggressive cut was not as clear-cut as some expected.

  Last month's job losses marked the second straight decline in the number of workers on US payrolls, the Labor Department said Friday. Hours worked decreased and the unemployment rate rose to 5.7 percent in October from 5.6 percent in September.

  Factory jobs tumbled by 49,000 this year, reflecting a worsening of the slump in the industrial sector that was underscored by a report from the private Institute for Supply Management.

  ISM's factory index fell to 48.5 in October from September's 49.5. Any reading below 50 shows shrinkage in the manufacturing industry.

  Most analysts now expect a quarter percentage point reduction in short-term rates when the Fed meets on Wednesday, though many said the latest batch of economic numbers did not depict the kind of dire scenario that would prompt a more aggressive half-point cut in borrowing costs.

  "I think the economy is weak enough that we will get a Federal Reserve rate cut next week," said Harvey Katz, chief economist at Value Line Inc, a research firm in New York.

  A Reuters poll of 22 leading Wall Street bond firms showed that all but one projected a cut by the Fed in short-term rates next week. Fifteen dealers predicted a quarter-point move and six forecast a half-point cut.

  While Wall Street digested the interest-rate implications of the data, Democrats pounced on the economic fragility as a key issue for Tuesday's congressional elections.

  With Democrats and Republicans locked in a heated race for control of the Senate and House of Representatives, Democrats suggested Republican President George W. Bush was to blame for the economy's woes.

  "Since Republicans took the White House, total payrolls have declined by almost 1.5 million jobs. The time is long overdue for the Republicans to admit the economy is in trouble and to sit down with Democrats to work out a solution," Representative John Spratt, ranking Democrat on the House Budget Committee, said.

  For his part, Bush said the fact the US economy lost jobs last month was "a problem" but that the foundation for growth was strong.

  The US economy grew at a respectable rate of 3.1 percent in the third quarter. Still, that number was boosted by strong car sales that have since turned lower.

  Bolstering that view was a report from the Commerce Department showing that consumer spending, a key driver of the economy, fell 0.4 percent in September, its first drop since November 2001. Personal income grew by 0.4 percent in the month.

  Measures of consumer confidence have slid for the past five months and this accelerated in October as fears of a war on Iraq, a weak job market and punishing losses in stock markets weighed on consumers' views.

  October was a sluggish month for auto makers.

  General Motors said its US auto sales in October fell 32 percent. Ford said its US vehicle sales fell 31 percent in October from the same month last year.

  For your information

  Dark Clouds

  * Last month's job losses marked the second straight decline in the number of workers on US payrolls. * The manufacturing sector also shrank last month. * Consumer spending fell 0.4 percent in September, its first drop since November 2001.
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