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"A View From Across The Pond" an Englishman's personal view of the week's news in the USA
- from Erithacus
Just when the economic situation was starting to look serious, the surprise move by the Federal reserve to reduce interest rates by half of one percent brought euphoria to the stockmarkets. And just as quickly the excitement seemed to turn to despair as a mass of bad news arrived and the markets plunged again.
Although the interest rate cut had been expected at the end of January, its early and unexpected arrival together with the possibility of yet another cut in the very near future was just what the financial markets needed to raise spirits and send both the Dow Jones and Nasdaq indices racing towards recovery of some of their recent losses. The Nasdaq in particular, suffering from investors’ disillusionment with technology shares and worse than expected results from major technology companies, climbed a remarkable 14% after the announcement. The gains were completely wiped out by close of business on Friday, with the Nasdaq losing 159.18 points, 2%, on the day and finishing the week 2.5% down at 2407.65. The Dow Jones had lost 1.2% on the week, finishing at 10662.01.
The worst news came from utility companies, particularly those in California, where the situation is so serious major banks are worried that loans to them may have to be written off. In California, whose economy on its own would rank as sixth largest in the world if measured alongside national economies of other countries, both Pacific Gas and Electric, and Southern California Edison have warned that they could file for bankruptcy within weeks. Southern California Edison announced they were laying off 13% of the total workforce of 11,000. Electricity prices are set to increase substantially, which will further damage consumer confidence and not help the deepening crisis in retailing. If a plan to bail out the utilities with government finance goes ahead, the cost of this will also be met ultimately by the consumer.
Meanwhile, the retail industry reported figures on Thursday which showed growth in revenue of just 0.1%, possibly the lowest for ten years and far below analysts’ estimates. Several of the larger retailers have announced store closures and major job losses. Worst hit were clothing sales, although many of those specialising in teen clothing did better than expected with a very few showing increases in sales of over 14%. It should also be remembered that particularly bad winter storms in many areas have hit retail sales as consumers stayed at home.
Despite the gloom, unemployment figures remained steady at 4% for December, although indications are that there have been significant job losses throughout the goods-producing sector. Jobs growth is said to be accounted for by the government rather than private industry. But these better than expected figures are, according to some, an indication that the concerns over the economy are over-stated. Oscar Gonzalez, an economist at John Hancock Financial Services in Boston, is reported as saying, "The economy may be slowing in the way the Fed hoped for." I do hope he’s right.
6th January 2001
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