US chemical economists raise red flag on economy

17 October 2008 20:03  [Source: ICIS news]

ACC raises red flagWASHINGTON (ICIS news)--The American Chemistry Council (ACC) raised a red flag on Friday over economic conditions facing the US economy and industry, citing a marked deterioration in manufacturing and consumer spending.


Amid the financial crisis and credit turmoil that has roiled markets and policymakers worldwide, the council noted that a wide range of economic indicators point to tough times in the near term, even if government rescue efforts ultimately succeed.


“The economic reports were mostly negative,” the council’s economic team reported in their weekly outlook, “and as a result we’re posting red banners for the status of the macro-economy and for the status of the business of chemistry.”


If 13 or more of 20 standard economic indicators - such as retail sales, business inventories, producer prices, energy costs, etc. - are positive, the council posts a “green banner” to signal favourable business winds. 


If only eight to 12 of business measures are positive, the economy rates a cautionary yellow banner from the council’s economic team.


This week the council raised its red flag because fewer than seven of the 20 business markers were in positive territory. This is the first red banner posted by the council since the economic downturn that followed the 2001 terrorist attacks.


“Industrial production fell by the largest amount in 34 years as disruptions from the September hurricanes piled on top of already weakening demand,” said Emily Sanchez, the council’s manager for statistics and surveys and part of the trade group’s economic section.


She noted that recent surveys of manufacturing activity were, in a word, “awful, signaling a marked deterioration”.


“Housing continued its freefall as both housing starts and building permits sank to 17-year lows,” she said.


Citing the Federal Reserve’s survey of current economic conditions known as “the Beige Book”, Sanchez pointed to tight credit conditions and increased uncertainty that are “holding back manufacturing and other business activity in many” of the Fed’s 12 regional districts.


“Furthermore, the combined impact of higher unemployment, tighter credit, lower home values and overall heightened uncertainty is pushing down consumer spending,” Sanchez said.


“The retail sales report is yet further evidence that consumers are beginning to re-trench in face of strains and strong headwinds. Nominal retail sales have fallen three months in a row,” she noted. 


There is, however, some hint of a silver lining amid the dark economic clouds.


“As aggregate demand slows,” Sanchez said, “so does the price of oil, which fell by half compared to July’s high and reached a 14-month low.”


She pointed out that producer and consumer price reports indicate that price pressures are receding, which in turn could give the Fed further grounds for making another interest rate cut when the bank’s governors meet in two weeks.


In addition, as the Fed and Treasury Department moved to implement the $700bn (€518bn) economic bailout package approved by Congress on 3 October, “There were signs this week that the conditions in the credit market are easing”, she said.


“Risk premiums and interest rates slipped but recovery of confidence will be slow,” Sanchez added.


($1 = €0.74)


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By: Joe Kamalick
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