FocusUS, global economic outlook seen to darken

11 January 2008 21:21  [Source: ICIS news]

By Joe Kamalick

 

WASHINGTON (ICIS news)--While current and near-term data suggest that broad US economic fundamentals remain steady, there is mounting concern that the American and global economies could step into a deep, dark hole later this year.

 

Kevin Swift, chief economist at the American Chemistry Council (ACC), noted in his weekly outlook on Friday that recent US economic reports were generally positive.

 

“Consumer credit, which tends to mirror consumer spending, increased,” Swift said, climbing by $15.4bn (€10.5bn) to $2,510bn in November compared with October.  That represents an increase of 0.6% for the month or 7.4% on an annualised basis.

 

In addition, Swift said, “Wholesale trade grew more than expected, giving some hope that the fourth quarter may not have been as slow as previously expected”. 

 

Wholesale trade rose 2.2% in November to $380bn and followed a 1.4% gain in October. Swift pointed out that “compared to November 2006, sales of merchant wholesalers were up 14% year-over-year”. 

 

However, he added, part of that increase over November 2006 was due to higher wholesale prices for petroleum products such as gasoline and home heating oil, driven by the sharp year-long increase in oil prices.

 

In the chemicals sector, Deutsche Bank noted that railcar loadings of chemical cargoes improved 3% for a four-week moving average of rail freight commodity data, and for the year to date chemical railcar loadings are up 4%.

 

Bank of America (BOA) analysts said they expect US commodity resins prices to increase by as much as 2% this month as the North American market “appears tight with a nameplate operating rate of 90% in the first quarter this year and an effective rate of 97% given 7% offline capacity”.

 

Even so, the BOA forecasters said they expect margins for US commodity resins producers to fall slightly this month because of increased costs for energy and feedstocks.

 

Those margins might well narrow further, because for the long term Swift and other economists are decidedly worried.

 

“Despite the fact that this week’s economic reports may indicate higher than expected business activity during November, it is generally recognised and supported by many other reports that the economy has slowed significantly from the third quarter and conditions may be worsening as we move into the new year,” Swift said.

 

Deutsche Bank took note of Thursday’s speech by Federal Reserve Board Chairman Ben Bernanke, pointing out that while the Fed chief all but promised more interest rate cuts to prop up the US economy, Bernanke in the same breath suggested a rough ride ahead.

 

Bernanke, said Deutsche Bank, “highlighted the downside risks to growth from fragile financial markets” and spoke of “adverse dynamics that might threaten economic or financial stability”.

 

The ACC’s Swift noted that the “UN Department of Economic and Social Affairs warned that the world economy could come to a near standstill in 2008”.

 

“Economic woes in the US during the second half of 2007 - the bursting of the housing-market bubble, the unfolding credit crisis and the falling dollar - were largely to blame,” Swift said, citing the UN data.

 

“A continued economic downturn and slowdown in consumption in the US, coupled with further strong [US] currency depreciation, could create more uncertainty across global financial markets and push down growth projections,” Swift said.

 

($1.00 = €.68)

By: Joe Kamalick
+1 713 525 2653

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