Economic Update - US Economy September 1998

Economic Update

US Economy catching Asian flu?

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After a bone-crushing drop in the U.S stock market amid another round of global turmoil and poor profit news, it is becoming increasingly obvious that prospects for the U.S economy are now dimmer than they had been. Many forecasters are lowering their sights on economic growth, and recession worries are even starting to crop up. Now the bad news:

Dow Jones industrial average plunged 19% from its July 17 peak to the dramatic 512-point tumble on August 31, affecting confidence and spending decisions of both households and businesses. The market is moving yo-yo now.
Russia's debt default and growing perceptions of a world leadership crisis, will lead to a widening trade deficit, pulling down U.S growth for the rest of this year and into 1999.
US Government data from some 20,000 companies show that earnings of non-financial corporates America are in a decline that is already close to the those of the 1990-91 recession, with severe margin squeeze. Capital spending will be lower on the back of weaker profits and soft stock market prices.
The Commerce Department's review of second-quarter corporate profits indicate a 1.1% fall in earnings (adjusted for inventory valuations and accounting for tax versus replacement-cost) from the first-quarter level. This is a 2.5% from their peak in the third quarter of last year, and the weakest three-quarter showing in five years.
National Association of Purchasing Management (NAPM) reported that its industrial-activity index edged up to 49.4% in August, from 49.1% in July, but since the index remains below the 50% mark it means that the manufacturing sector is declining. Reason: Export orders fell to the lowest level in the 10 years of data-gathering.

The question being asked is has the US finally caught the Asian flu. The East Asian miracle ended last year with the imploding of East Asian economies as a result of the speculative attacks on their currency and stock markets. The blame was placed on crony capitalism and nepotism by the foreign media. The contagion has since spread to other parts of the world. It is evident now that there is more to the Asian flu than crony capitalism and nepotism. If steps are not taken immediately to arrest the disruptive capital flows, and bring about a solution and recovery to the East Asian crisis, the Asian flu is likely to affect the US and move on to become a globol epidemic.

Webmaster's note: The above article is an excerpt from BusinessWeek Asian edition 14 Sept 1998. For further information, visit its website at www.businessweek.com.

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