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Saturday, 6 December 2008

US recession to deepen

WASHINGTON - A MEASURE of future US economic growth and its annualised growth rate both ticked up in the latest week, but they still suggest the recession will intensify in the near future, a research group said on Friday.

The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose in the week ending November 28 to 109.9 from 106.9 in the previous week, revised from 106.8.

The index's annualised growth rate was also less negative at minus 28.5 per cent from last week's negative 29.2 per cent.

'Despite the first uptick in WLI growth since mid-September, it remains in a steep cyclical downtrend, suggesting that the recession will deepen further in the coming months,' said Mr Lakshman Achuthan, managing director at ECRI.

Stronger stock prices and housing helped the weekly index edge higher but lower commodity prices partly offset the gain, Mr Achuthan said.

Job losses shake confidence
The US economic picture darkened further on news of a massive loss of 533,000 jobs in November, raising fears that the recession gripping the global economy will be worse than anticipated.

The US Labour Department said the US economy lost 533,000 jobs last month, the highest monthly job loss in 34 years and much higher than the 325,000 forecast, taking the unemployment rate to a 15-year high of 6.7 per cent.

The department also made a sharp upward revision in the number of job losses in the prior two months: October saw a loss of 403,000 jobs (up from an earlier estimate of 240,00) and September job losses were revised up to 320,000 from 284,000.

Analysts said the fall was the worst monthly outcome since 1974 and likely means authorities will have to do more to combat the recession on top of the hundreds of billions of dollars already spent to bolster the world's largest economy.

'The employment reports punctuates the fact that the economy is in a deep recession that appears to be rapidly worsening as a result of the sharp decline in consumer spending and significant deflationary forces which discourage immediate business investment,' said Mr Frederic Dickson, chief market strategist for Davidson Companies.

'There is no sugar-coating this data,' said analysts at Briefing.com.

US President George W. Bush acknowledged for the first time that the US economy was in recession.

'Today's job data reflects the fact that our economy is in a recession,' Mr Bush said in hastily announced remarks on the South Lawn of the White House.

'My administration is committed to ensuring that our economy succeeds, and I know the incoming administration shares the same commitment.'

President-elect Barack Obama, who takes over on January 20, called for an 'urgent' effort to put people back to work and to stimulate the US economy.

'There are not quick or easy fixes to this crisis, which has been many years in the making, and it's likely to get worse before it gets better,' Mr Obama warned in a statement.

US authorities have already taken a variety of steps to induce growth, including injecting multi-billion dollar bailout packages to cushion the financial and other key sectors from collapsing.

A key anticipated measure is the US Federal Reserve likely to slash interest rates by at least 50 basis points next week from the current 1.0 percent.

The US stock market fell immediately after the bleak US job data but recovered ahead of the close for the week, with the benchmark Dow Jones Industrial Average up 229.79 points to 8,606.03 at around 2040 GMT.

The market expected the US authorities to move swiftly to address the crisis, some analysts said.

But in London, the FTSE 100 index of leading shares finished down 2.74 per cent to 4,049.37.

In Paris, the CAC 40 slumped 5.48 per cent to 2,988.01 and in Frankfurt the DAX fell 4.0 per cent to 4,381.39.

Commodity prices fell too on fears the US figures herald a very sharp drop in demand in the United States, the world's biggest energy consumer, with the Brent oil contract falling below 40 dollars to levels last seen in January 2005.

Dutch Prime Minister Jan Peter Balkenende said his country was probably heading for recession and economic growth might 'fall away' in the next two years.

Analysts said the latest developments were worrying after a series of unprecedented interest rate cuts in Europe on Thursday, led by the European Central Bank with a record reduction of 0.75 percentage points.

As interest rates move ever lower, the impact of each successive change weakens, meaning the authorities have to take increasingly dramatic action. -- AFP, REUTERS

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