Turbulent economy

Attack on the economy

The attacks of September 11 have undeniably impacted our economy for the worse. However, recently released economic figures suggest that much of this would have occurred anyway.

The value of completed construction projects fell 1.1 percent in August, which correlates with expectations and the weakening economy in late summer. New single-family completions and public building showed no growth, but all major non-residential markets decreased in activity. Industrial and office completions were the weakest, as demand was falling throughout the summer. With less people traveling after September 11, hotel vacancies are increasing. Job cutbacks also have accelerated, which will lead to a weaker demand for offices.

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Existing and new-home sales were strong in August, but permits and starts were down. Builders were starting to see lower household demand, even prior to the September 11 events. Some worry that the drop in remodeling activity indicates a weakness in consumer spending, which could lead to the oversupply of the retail market.

However, on a good note, educational completions jumped nearly $3 billion and, for the past four months, they have averaged 20 percent stronger than one year ago. The growth in educational building is expected to move into the secondary and university levels as the younger generation ages.

The Conference Board Leading Indicators

The U.S. Index of Leading Indicators fell 0.3 percent in August, which shows that the economy was already weakening prior to the September 11 attack. This decline marks a set back in the forecast of the economy's future prospects. Details of the index indicate that the weakness was broad based and ended a four-month period of recovery. Seven of the 10 indicators that make up the leading index decreased in August. These include (listed largest to smallest): average weekly manufacturing hours, index of consumer expectations, stock prices, vendor performance, interest-rate spread, average weekly initial claims for unemployment insurance and building permits. Money supply was the only positive contributor.

August's report is disturbing news for the economy. In recent months the economy appeared weak with improving future prospects. Unfortunately, this is no longer the case. The question has always been whether consumer activity could avoid any shocks and hold on long enough to get the economy back on its feet. Given the economic disruption following the terrorist attack, it is unlikely that the U. S. economy can avoid a recession.

Despite the current economic gloom, many analysts feel the United States may still be poised for a 2002 rebound. Among other factors, the stimulus spending now being planned by the federal government is being viewed favorably.

Source: Economy.com's The Dismal Scientist

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