Evidence of Global Recession Gathers
The Congressional Budget Office said the federal
budget surplus for the fiscal year ending on Sunday will be about $121
billion, down from the $153 billion expected a month ago. The report,
more proof of a slowing economy, means the government will have used
about 50 billion in Social Security surpluses to help fund other programs -- something Congress and President Bush had vowed not to do.
Thursday September 27 4:33 PM ET
By Mark Egan
WASHINGTON (Reuters) - Evidence of a global recession gathered
pace on Thursday as grim news on the U.S. economy, from French
business and British consumers added to the growing belief that the
world economy is facing its bleakest outlook in years.
The latest data, coming more than two weeks after devastating attacks
on New York and Washington, showed households and businesses are
suffering from the economic earthquake that followed the Sept. 11
strikes.
Policymakers insist that it is too early to fully assess the economic
impact of the attacks, which rattled consumer confidence and hammered
businesses like airlines, tourism, retailers and insurance firms. But the
omens are bleak as the economic proof trickles in.
In the United States, the number of people lining up for unemployment
assistance hit its highest level in more than nine years. Jobless claims for
the week ended Sept. 22, the first full week of data since the attacks,
rose 58,000 to 450,000 from the previous week. New York, where
hijacked airplanes destroyed the twin towers of the World Trade
Center, was the hardest hit with a spike of 11,000 new claims.
More than 122,000 U.S. aviation jobs already have been lost since the
attacks, and the jobless report showed unrelated industries like auto
makers were seeing increased layoffs too.
NO JOBS
The dismal job market news further darkens the picture for the world's
richest economy, which may have already been heading toward
recession before the attacks. And if those newly unemployed Americans
were hoping to find work soon, another report showed that may not be
a realistic hope.
A report on how many job vacancies were advertised showed that even
before the attacks, ``help wanted'' adverts had slumped in August to
their lowest level since early 1983.
Yet another report released on Thursday showed a third monthly
decline in orders for long-lasting manufactured goods in August --
another bad sign for the economy.
``The (U.S.) economy is in recession. It was slammed by the terrorist
attack two weeks ago, but I think with a bit of luck and some deft
policy making the economy could be firming up by early next year,'' said
Mark Zandi, and economist at Economy.com in West Chester,
Pennsylvania.
In Europe, where economic growth is also slowing, polls showed that
French business confidence has hit a five-year low and that British
consumer optimism slipped to its weakest level since 1980 in the wake
of the U.S. attacks.
U.S. and European officials say a rebound has been set back by only a
few months and deny that recession is inevitable.
But investors are running for cover from a weakening in the United
States, the euro zone and Japan, the world's three largest economies,
which some fear could spiral into one of the worst depressions since
World War Two.
The Congressional Budget Office said the federal
budget surplus for the fiscal year ending on Sunday will be about $121
billion, down from the $153 billion expected a month ago. The report,
more proof of a slowing economy, means the government will have used
about $50 billion in Social Security surpluses to help fund other programs -- something Congress and President Bush had vowed not to do.
EUROPE ON HOLD
Reflecting the uncertainty over what lies ahead, the European Central
Bank kept interest rates on hold as expected at its twice-monthly
meeting in Frankfurt.
``We have still not touched the lowest point,'' said Exane economist
Emmanuel Ferry, commenting on the French survey. ``It should happen
in the first quarter next year, but the economic revival will not come
before the second half of 2002.''
The International Monetary Fund said the global
economy had been near recession even before the attacks and that the
risks of a prolonged slump had now grown.
IMF chief economist Kenneth Rogoff said it was possible the U.S. was
already in recession but stressed that was not ``a done deal'' -- a phrase
he used on Wednesday but later retracted.
Overall, Rogoff sought to strike an optimistic tone.
``There are grounds to be optimistic that the impact (of the U.S.
attacks) will not be that deep or long-lasting,'' Rogoff told reporters in
London.
He added that there was ``tremendous uncertainty'' surrounding the
world economic outlook but said there was ``a good chance of a good
bounce back in 2002.''
The IMF on Wednesday forecast global economic growth of 2.6
percent this year, well below growth of 4.7 percent last year and
hovering just above the key level of 2.5 percent growth viewed by
economists as indicative of a global recession. But the IMF admitted
that its 2.6 percent estimate may now be too high now in light of the
Sept. 11 events.
FUNDAMENTALS UNCHANGED
Britain's Prime Minister Tony Blair insisted on
Thursday that the ``fundamentals of the economy have not altered.''
``In the end this is as much a matter of confidence as much as anything
else and there really is no reason why we cannot carry on and be
confident in the basic strength of our economy,'' Blair told reporters in
his Downing Street office.
The attacks on the United States have caused the worst decline in U.S.
stocks since the Great Depression of the 1930s, eroding the spending
power of households that had been helping to keep the world's richest
economy afloat.
Some Wall Street investors used the low level of the stock market to bargain hunt on Thursday, helping the stock market overturn early losses. The Dow Jones Industrial Average closed about 1.3 percent higher on Thursday while the technology-laden Nasdaq index ended roughly flat, erasing an earlier
drop.
U.S. Treasury Secretary Paul O'Neill reiterated on Wednesday that the U.S. economy will bounce back. ``My own view is the recovery has been slowed by a quarter or so.''
And in Tokyo, Prime Minister Junichiro Koizumi said an economic revival was Japan's ``responsibility to the world.''
Separately, the Bank of Japan intervened in foreign exchange markets to stop the yen's advance from hurting Japanese exports, with the European Central Bank also selling yen for euros at the BOJ's
request.
Major central banks have already slashed interest rates to shore up confidence. The U.S. Federal Reserve is expected to cut again when it meets on Oct. 2. The ECB met in Frankfurt on Thursday for the first time since it slashed interest rates 50 basis points on Sept. 17, but
left interest rates unchanged.
ECB council members had earlier stressed their confidence in a rebound in growth as soon as the fourth quarter.
It will be months before data gives a reliable guide to what is happening in the economy. In the meantime policymakers have only forward-looking surveys of business and consumer confidence -- something seen as key to the broader outlook.
Sentiment was already dwindling before the attacks and this means that it will be very vulnerable to a
further shock.
French business confidence fell in September to its lowest since August 1996, according to a survey by
state statistics office INSEE in data collected predominantly before Sept. 11.
A Mori poll published by Britain's Times newspaper and conducted between September 20 and 25 showed economic optimism for the year ahead dropping to minus 56 from minus 31, which was the lowest since March 1980.
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