The American Economy

[Ed Weick]

I thought I would post the following "more bad news" article from this morning's Globe and Mail business section.  While the article mentions that the American economy was in decline before the events of September 11th, what happened that day and the consequent nervousness of American consumers, producers and investors appears to have been quite significant in its effects.   A front page article in the G&M deals with how irrational Americans (and, I'm sure, others) have become since September 11th, buying gas masks, antibiotics, and rubber gloves to make themselves feel they have some control over their personal situations, when the reality is that such actions make no difference whatsoever.  What this suggests is that the more uncertain a situation is, the less rational the response becomes.  It also suggests that when, in times of uncertain outcomes, people lose control over events that affect their lives, they will do everything they can to develop and maintain an illusion of control.  IMHO, we can expect consumers to sit tight for quite some time, gas masks, antibiotics and rubber gloves at hand, and not want to spend money on things not needed for day to day survival.  Given the large and growing uncertainty abroad in the US, and the factors feeding this uncertainty, it may be a long time before there is an economic recovery unless of course there is a major stimulus from the defence and security sectors.    Ed Weick    U.S. industrial production down in September   Globe and Mail, October 17, 2001 Reuters News Agency Washington — U.S. industrial output slumped sharply again in September, dropping 1 per cent and marking its longest slide since the end of the Second World War, the Federal Reserve said Tuesday. The 12th straight decline in monthly output for the nation's factories, mines and utilities was the longest since a string of decreases extending from November 1944 to October 1945, the Fed said. The percentage of industrial capacity in use in September dropped to 75.5 per cent — the lowest it has been since June 1983 — from 76.4 per cent in August. While Wall Street analysts had anticipated a drop in September production, the output figure was weaker than had been expected. Analysts polled by Reuters had expected production to drop by 0.8 percent and for capacity in use to fall to 75.4 per cent. The report is the latest to detail a long-running contraction in the nation's manufacturing sector. The monthly index compiled by the National Association of Purchasing Management has held below its break-even mark of 50 since August of last year. Similarly, the government reported that 93,000 jobs were cut in the manufacturing sector in September. Carey Leahey, senior U.S. economist with Deutsche Bank Securities Inc., said the production number was "really weak." "I don't see any light in the tunnel for the manufacturing sector with the dollar strong and global demand continuing to unravel, but one can argue that you probably won't see many more one percent drops in a single month," he said. The Fed's report showed manufacturing activity, the largest portion of industrial production, fell 1.1 per cent in September after a 0.9 per cent decline in August. The factory use rate fell to 73.8 per cent in September, its lowest level since May 1983 when it hit 73.4 per cent. It stood at 74.8 per cent in August. The overall September numbers would have been worse, however, if auto output or production of high-tech goods such as computers, semiconductors and communications equipment were taken out of the equation. The Fed said industrial production excluding motor vehicles and parts slipped by a larger 0.9 per cent, as did production outside the high-tech sector. Vehicle production dipped slightly, to an 11.23 million annual rate from an 11.63 million pace in August. The report made little mention of the Sept. 11 attacks that many analysts believe likely pushed the U.S. economy into recession. It noted production of business supplies slipped 1.5 per cent in the week, hurt by a "sharp cutback in jet fuel production" related to the temporary grounding of U.S. airlines in the wake of the attacks. Elsewhere in the report, utilities production dropped 1.8 per cent in September. Mining production, however, rose 0.3 per cent in the month.