Saturday, September 8, 2007

US growth is definitely slowing down

The latest job report came out yesterday and fears of a recession is taking hold. Why? Because its the first time in 4 years where the US economy lost jobs (-4000), instead of adding on to jobs. Cut in jobs mean economic growth might be stalled. Since US is the biggest consumer of services, their slowing economy has an adverse effect on the global economy. No one will like this because it will affect almost each and every country in the world.

I was curious so I dug a little on the details. I'm not a economics graduate but I guess I can still understand some numbers. :)

Government sector (public): -28,000
Private sector: +24,000
Total: -4000

Therefore looking on this perspective, the general economy is still growing, abeit a little slower.

Government sector lost jobs due to the slower hiring in the education sector.

Private sector was largely affected by the construction and manufacturing. Construction we all know why. Manufacturing though, the most job cuts is due to the automobile sector. The reason behind that is most probably due to Toyota, high oil prices, and the upcoming energy bill "forcing" cars to be more energy efficient. However, services sector hiring is healthy.

By looking at the details, I don't see that recession is coming because the different sectors are balancing each other. By zooming out, and looking at the numbers using year on year, you'll find that there's virtually no change in numbers compared to Aug 2006. Therefore looking at it as a whole, the economy is still growing, just much slower.

I still do not believe that the US will go into recession just because of a major slowing down on one economy sector. Gone are the days where the country is only reliant on 1 particular sector for growth, especially for developed countries. If this still happens, it speaks alot of the current Bush administration.

However, the numbers do have an effect on the general global economy. The threat of a recession for US does go up. Singapore, being highly reliant on the US economy, will be affected, as our most recent newspaper articles show. Now is the time though to see if all the FTAs among Asia countries help in averting a recession. It will be interesting to see how our government will react to this piece of news.

So will this jobs data trigger a cut in the Fed's benchmark interest. Previously, I was of the opinion that the Fed would not cut at least for this year. However, for now, I think the Feds would be forced to cut 25 basis point in September. It'll be more of a psychological cut, instead of an economy-induced cut. After that, they will maintain the rate, and depending on the inflation data, they might raise the interest rates again. Of course this is a personal opinion, based on the various news I've read and dug out.

Having said that, the Feds might have more tricks up their sleeves. With new chiefs, come new ways of doing things. Who says you must take the same medicine to cure the same illness? :) I got a weird feeling that the Feds might not cut, but introduce some other measures. Easy money does not cure the illness. It just hides the symptoms.

This is really an interesting year...

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