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Friday, January 28, 2022
WASHINGTON, May 2 2008 (IPS) - In the troubled U.S. economy, even good news turns to gloom on closer inspection.
Consumer spending rose 0.4 percent in March, the Commerce Department said 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 percent – 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 percent per year for the second quarter in a row.
As with consumer spending, the news failed to inspire exuberance.
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 2.0 percent. This marked the seventh rate cut since last September, when the federal funds rate stood at 5.25 percent.
“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 percent in March from 0.4 percent 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 percent 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 or main 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 to the highest bidder.
The number of properties that received at least one foreclosure notice in the first three months of this year rose 112 percent from the first quarter of 2007, according to industry research group RealtyTrac, Inc.
Foreclosure filings between January and March 2008 affected some 650,000 homes and marked a 23 percent rise from the fourth quarter of 2007, the firm said on Monday.
In all, one in every 194 households received a default, auction, or bank repossession notice in the first three months of this year, the seventh consecutive quarter of increasing foreclosures.
The foreclosure figures suggest that heavily hyped efforts by lawmakers, mortgage lenders, and the George W. Bush administration to help homeowners at risk of dispossession have had no significant impact.
Hope Now, a mortgage lenders’ initiative organised by the Bush administration, said nearly 503,000 homeowners received some form of help with their mortgages during the first quarter. Most of this aid was temporary, however. During the same period, lenders repossessed nearly 157,000 properties, said RealtyTrac.
Housing spending plunged by a record 4.6 percent in March, leading overall construction spending down by 1.1 percent and prolonging a 23-month contraction in the building industry.
Manufacturing activity did not fall between March and April but remains on a downward trend, the Institute for Supply Management said. The research organisation caused a stir in February, when it said activity in the services sector, which has long eclipsed manufacturing as an employer, had fallen for the first time in nearly five years.
The country’s largest operator of shopping malls appeared to reinforce the researchers’ findings on Tuesday, when it said bankruptcies among its retailer tenants shot up during the first quarter.
Simon Property Group Inc., which manages some 259 million square feet of malls and outlet centres, said rented space lost to retailer bankruptcies reached 133,000 square feet compared with 24,000 square feet a year earlier.
Company executives blamed this on housing woes and eroded consumer purchasing power.
On the jobs front, claims for unemployment benefits rose by 35,000 to 380,000 last week, according to the Labour Department. This was a larger increase than private economists had expected and adds to a growing body of research showing that employers have gone beyond simply deferring new hiring and have begun to let go of some workers while negotiating increasingly stingy terms with others.
The unemployment rate stands at 5.2 percent. Analysts have been quoted as saying they expect it to top 6 percent in the next 12 months or so.
Against this backdrop, consumer sentiment continues to slide with every passing month, business research group The Conference Board said this week. Its consumer confidence index has sunk to its lowest point in five years.
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