BY EVA CHENG
The United States National Bureau of Economic Research (NBER) officially declared on November 26 that the US had lapsed into recession, and had been in that situation since March 2001. Soon after, the capitalist media and mainstream commentators began a concerted campaign to sell the idea that the US recession is "nearly over".
A New York Times headline that ran in early January, "Worst may be over despite a miserable quarter", is typical of the sort of bullish propaganda that has been pumped out. Despite quoting an analyst's prediction that the fourth quarter US corporate earnings will be "terrible" (which will reflect the immediate effect of the September 11 attacks), the NYT story still tried to justify its main line by claiming: "Company earnings for a previous quarter aren't necessarily a leading indicator of anything, or even a defining measure of economic health for the immediate past."
This claim is amazingly off the mark. In a capitalist economy, corporate profits of the immediate past are critical to whether new investments will be made in the next period and affect the future activity of the economy.
To the commentators' surprise, their campaign was frustrated by Federal Reserve (Fed) chairperson Alan Greenspan's January 11 statement that, "we continue to face significant risks in the near term". Greenspan based his assessment on the continuing weakness of the levels of profits, investment and household spending, as well as possible further rises in unemployment and the fallout from the slump in stock prices over the last two years.
Wall Street reacted strongly to Greenspan's statement, with the key Dow Jones stock price index plunging nearly 1%, to 9987. The Federal Reserve quickly switched to damage control. "Fed watchers" reported a whispering campaign, originating from the Fed, that sought to reverse the gloomy expectations. On January 22, the president of the Fed's unit in Dallas, Bob McTeer, claimed that "my chairman's" remarks were not "quite as negative" as some people made them out to be.
The next day, the American Bankers Association (ABA) predicted that the recession would soon be over. That hope was reported as fact by the capitalist press, even though it was mere speculation based on perceived "favourable" factors.
However, the mainstream media chose to play down a crucial ABA qualification that "capital spending in prior years has generated excess capacity in most industries, and until capacity utilisation rates rise significantly, it will be difficult to sustain the economic recovery".
Are there signs, let alone firm or sustained ones, that capacity utilisation rates have risen significantly? None whatsoever. The US capacity utilisation rate has dropped from 80%-plus levels, where it had been for years, to 76.2% in August and 74.4% in December.
Nor was there a firm improvement in other key indicators since the recession was declared. Industrial production in December dropped by a further 0.1%, after a 0.4% decline in November. Manufacturers' shipments, inventories and orders fell 3.3% in November, following an increase of 7% in October.
Manufacturing and trade inventories and sales contracted by 1.4% in November, after rising 2.8% in October. Privately owned housing starts dipped by 3% in December compared to a 7% rise in November. New orders for manufactured durable goods in November slid by 4.8%, after a 12.5% rise in October (but having dropped in five of the last six months).
While some indicators, like employment, have reported a smaller contraction, to conclude on this basis that a recovery is on its way is far-fetched. It is not an accident that the NBER takes between six to 12 months before it declares that a recession or a recovery is taking place.
On the contrary, recovery-hype proponents are trying to sell their case based on just weeks of data. In contrast, they fell asleep last year, until September 11, when signs of recession were becoming overwhelming.
Without providing new evidence, Greenspan on January 25 optimistically said, "There have been signs recently that some of the forces that have been restraining the economy over the past year are starting to diminish and that activity is beginning to firm."
Greenspan also chose to ignore the significance of recent major corporate collapses. Enron (with pre-bankruptcy assets of US$63.4 billion, by far the biggest US company to ever go under), Kmart (the biggest US retailer to have ever failed) and Global Crossing (the biggest US telecommunications firm to go belly up) have all gone bankrupt despite the "recovery" hype.
With pre-bankruptcy assets of US$25.5 billion and US$17 billion respectively, Global Crossing and Kmart are the fourth and seventh biggest US firms to have failed since 1980. Enron's assets were nearly three times that of Pacific Gas and Electric Corp, the second largest US firm to go bust last year.
The significant sizes of these collapses are a measure of the depth of the recession. So are the record-breaking 1,437,354 bankruptcies in the 12 months to September, 14% more than the previous year. The average value of the top 15 biggest failed US firms in 2001 was US$11,375 million, more than three times higher than the value of the top 15 in 2000.
Given the economic links among and between firms and their creditors, failed companies can easily drag many more entities down with them. The bigger the firms, the more damage. Many more failures are yet to surface.
It is no accident that US personal bankruptcies broke all records last year, a total of more than 1.45 million. The "chicken" of a heavily credit-driven US "boom" has come home to roost. This, together with the diminishing "wealth effect" from the stock prices bubble, will make a speedy US economic recovery highly unlikely.
From Green Left Weekly, February 6, 2002.
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