[NYTr] Booming Economy: US edges toward brink

[All the News That Doesn't Fit]

sent by Dave Muller (southnews)

National Post, Canada - Aug 27, 2007
http://www.canada.com/nationalpost/columnists/story.html?id=e73e068d-3bf3-44fd-ba7e-ef4e97aa087b

U.S. edges toward brink

Bernanke May Act Not Just To Save Skins, But Jobs

by Jacqueline Thorpe

In his bid to avoid looking as if he's bailing out the financial elite 
when their rash speculations go awry -- in effect, replacing the 
Greenspan put with the Bernanke backstop -- the rookie Fed chairman had 
better take care the U.S. economy does not slip into recession under
his nose.

For even before the liquidity flood turned into a liquidity drought, 
causing bankers to change their chinos for pinstripes and start acting 
like bankers again, the world's biggest economy was knee-deep in a 
housing crunch. The question remains: How far will it bite into the
rest of the economy?

"Even as the news from the credit markets continues to improve, it is 
important not to lose sight of the damage that the housing slump will 
cause via more conventional channels," Julian Jessop at Capital 
Economics said in a note last week.

Those channels start with a reduction of homebuilding activity (already 
well underway), mosey into the job market (far from over) and end 
directly in the lap of the consumer (still living in delusion?).

Mr. Jessop notes that residential investment's share of gross domestic 
product has already fallen from its recent peak of 7.5% to its
long-run, 4.75% average. But the average is not a floor: The overhang
of unsold property and weak sale prices suggests investment will keep
falling below its long-run average.

Challenger Gray & Christmas Inc., the U.S. employment consulting firm, 
says there have been 128,968 announced layoffs in housing 
industry-related jobs -- construction, real estate and mortgage 
brokerages, and the like -- but that number swells to nearly 270,000 if 
all financial sector cuts are included. And that was before last week, 
when the cuts were flowing on Wall Street and 12,300 people lost their
jobs.

Most analysts have marvelled at how well the U.S. unemployment rate has 
hung in. It stands at 4.6%, just off its March low of 4.3%, but David 
Rosenberg, chief North American economist at Merrill Lynch, says it is 
the rate of change in the unemployment rate that matters, not the level.

"There has never been a time when the unemployment rate has gone up 0.5 
percentage points without there being an official recession--and that
is true whether the starting point is 2% or 8%," he said in research
note.

As for the consumer, who knows what she will do, perhaps raid her stock 
market portfolio for funds now that the house-ATM is empty --as long as 
stocks can hold their prices.

The bottom line is that the Fed may actually have to cut rates for a 
reason -- to help prevent the United States from sliding into a 
recession, not just to salve the wounds of those on the wrong side of 
the trade.

Throughout the turmoil of the past few weeks, the advice from many 
market pundits and investment advisors has been to hang tough.

) National Post 2007