Recession in America next year?
I wonder though, how much of all these frightening reports seep into the consciousness of the ordinary Americans. A report last Saturday by the New York Times gave us an idea: “With an uncertain economy, a slowdown in the housing market and high gas prices hanging over their heads, American consumers flooded stores last Friday on the traditional first day of the holiday shopping season.”
But, the New York Times reported, the irrational exuberance of past Black Fridays (so called because it is supposed to be the day red ink in retailers’ books turned black) had been replaced by pragmatic restraint. The numbers reported by ShopperTrak RCT Corp., which tracks sales at more than 50,000 retail outlets, confirmed the robust start to the holiday shopping season. Total sales rose 8.3 percent to about $10.3 billion on Black Friday.
J.C. Penney Co. issued a statement saying there was “strong performance across all merchandise categories,” but cautioned, “it is still early in the holiday season, and we are mindful of the headwinds consumers are facing.” Last year, retailers had a good start during the Thanksgiving weekend, but struggled in December.
The question is, is this the new normal for consumer-driven America?
Then again, why should we care? Why should America’s economic health be of any concern to us? Well, it is pretty much because of the old observation that when America catches a cold, we end up with pneumonia. And if you have been religiously reading the Financial Times, The Economist and the Asian Wall Street Journal as well as tuning in to Bloomberg TV and the business news shows on BBC and CNN, you get the feeling that America already has a bad case of flu but its officials are largely in denial.
Recession in America looks increasingly likely, The Economist recently declared. But unlike past recessions, hope was offered that booming emerging markets may be able to save the world economy. Emerging economies are expected to contribute half of the globe’s GDP growth this year, measured at market exchange rates, over three times as much as America. But there’s no denying that America is still the world economy’s main engine of growth. If America falters, that has to be seen as a kind of economic tsunami with ripple effects worldwide.
The Economist grants that America’s GDP grew by a robust 3.9 percent, at an annual rate, in the third quarter. But it points out that “more timely signs suggest that the economy could stall in this quarter. By early next year, output and jobs could be shrinking. The main cause is the imploding housing market.”
An Associated Press report says the latest look-ahead from the National Association for Business Economics (NABE) indicates the gross domestic product is on track to expand at just a 1.5-percent pace from October through December. If that proves correct, it would mark a sizable decline from the July-September rate of 3.9 percent.
“Spillovers from housing weakness to broader consumer spending, along with credit-market tightening, are seen as the most likely recession triggers,” the NABE report said. By a rough rule of thumb, a recession occurs if there are two consecutive quarters when the economy shrinks. At present the overriding worry is that consumers will cut back sharply, sending the economy into a tailspin. The danger is that the severe housing slump, weaker home values and harder-to-get credit, households can no longer borrow against capital gains to support their spending.
Then there is the hundred dollar oil barrel. In some parts of California, gasoline is already inching to $4 a gallon. American consumer confidence has already fallen sharply, The Economist reports. “It cannot be long before consumer spending stumbles, which in turn would hurt companies’ profits and investment.” Holiday spending may prove to be the last hurrah for the American consumer.
How does the rest of world look like now? The economies of Europe and Japan rebounded strongly in the third quarter, but look likely to slow down, The Economist predicts. “Strengthening currencies will hurt exporters in both places. Europe’s own housing hotspots are cooling, and some of its banks have been sideswiped by America’s subprime ills.”
And tough times in the developed countries, particularly America, will have direct negative impact on developing countries like ours who are terribly dependent on them. An economic slowdown could impact on job availability for our OFWs, our economy’s present bedrock. Even now, the hiring of Filipino workers has started to slump, according to the Philippine Overseas Employment Administration (POEA).
The Philippine STAR’s labor reporters filed a story last week showing a two percent drop in the deployment of workers compared to last year in the first 11 months of this year, based on preliminary data from POEA. From January to Nov. 11, POEA recorded a total deployment of 931,840 or some 19,000 lower than the 951,138 Filipino workers who left to work abroad during the same period in 2006. POEA data showed the number of land-based workers hired declined from 712,499 to 711,421.
Recruitment industry leaders attributed the slump in the hiring of Filipino workers to the serious lack of appropriately skilled workers. If a recession hits America, job opportunities will most definitely be affected not just for migrant workers but even for their own to make immigration an even hotter issue in the 2008 presidential election.
There seems to be no escaping tough times next year. But with Ate Glue’s credibility at a record low, it is difficult to see how she can captain the ship of state through this global super typhoon.
Failed engineering
Commenting on the World Bank’s decision to defer approval of a $232 million loan for road improvement due to suspicion of corruption in the project award, MMDA chairman Bayani Fernando told us that in reality, we lose more money from failed engineering than from outright corruption. He defines “failed engineering” as unnecessary engineering works, wrong designs, wrong execution and wrong estimates.
For instance, Chairman Fernando cited the penchant of DPWH to propose and for funding agencies like the WB and ADB to approve projects like pouring a layer of asphalt on main highways to make them more drivable. The MMDA chief considers that approach a sheer waste of money because nothing is done to correct the foundation failure of the road which caused the concrete pavement to crack in the first place.
This is why, he said, he refused to allow that to happen on EDSA. What he implemented instead is a more painstaking project that involves removing the concrete pavement completely and setting a good foundation before a new layer of concrete and asphalt are poured on. To minimize disturbance to traffic flow, he implemented this in blocks and worked on it during weekends.
Reading between the lines, “failed engineering” happens not because government infrastructure bureaucrats are incompetent but more because they are corrupt. Their more expensive approach provides more moolah for everyone to share. As in the case of the asphalt covering for cracked pavements due to foundation failure, they just love seeing the asphalt washed out after the rainy season because that means more asphalt and contracts to overprice to make the boys happy.
Sexy robot
Little Johnny asked his mother, “Ma, is it true that people can be taken apart like machines?”
“Of course not, where did you hear such nonsense?” replied his mother.
Little Johnny answered, “The other day, daddy was talking to someone on the plane, and he said that he screwed the ass off his secretary.”
Boo Chanco ‘s e-mail address is [email protected]
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