According to the BBC’s Online Report dated 2 January 2008, the US manufacturing sector contracted in December 2007, seeing its weakest monthly output since April 2003. According to the Institute Of Supply Management, its index of factory activity fell to 47.7. Anything less than 50 indicates a fall in manufacturing output.
World stockmarkets generally, and in the US in particular, swooned.
Oil makes its first trade above US100.00 (not for any fundamental reason, just a lone trader purportedly engaging in a "vanity trade" for personal bragging rights)
The US Dollar continues to weaken.
Interest rates in the US and elsewhere are expected to fall futher.
What’s it all mean? Since it’s the beginning of 2008, here’s SAW crystal gazing:
A weaker US Dollar means cheaper US exports. Theoretically good news for US SMEs. But it also fuels inflation both in the US and elsewhere – and high oil prices don’t help.
Given that the full force of the sub-prime debacle in the US has yet to pan out, housing starts and housing prices are still declining. In other words, the US economy (the world’s biggest driver) is slowing as consumers think twice about spending.
But just how slow is slow? Some say a “near miss” US recession is on the cards, some say a recession is in its early stages and some say no chance of a recession.
Sticking his neck out, SAW’s view is “near miss” recession in the US, with inflation there and in other countries, particularly those whose currency closely follows the US Dollar. Expect the US to cause some (military?) mayhem elsewhere in any event.
Some pundits are already talking ‘stagflation” i.e. inflation continues to rise, even though economic growth slows or reverses.
SAW’s view? Possible if the sub-prime mess turns out to be even worse and international credit markets go into a tail spin again.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
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