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Obama will inherit feeble economy awash in red ink
Barack Obama's presidential election victory comes with an albatross of a prize - a US economy beset by a stubborn housing slump and the worst financial crisis in 70 years.
- Agencies
- Published: 23:32 November 5, 2008
Washington: Barack Obama's presidential election victory comes with an albatross of a prize - a US economy beset by a stubborn housing slump and the worst financial crisis in 70 years.
Consumers and businesses are sharply reducing their spending and the government is awash in red ink. "He will inherit an economy that is in recession and ... is likely to get worse before it gets better," said Stuart Hoffman, chief economist for PNC Financial Services.
The Bush administration on Wednesday detailed its plans to borrow a record $550 billion in the final three months of the year as a down payment for the various financial rescue packages put into effect in response to the global crisis.
A Treasury Department official on Monday projected the government would need to borrow an additional $368 billion in the first quarter of 2009. Treasury is expected to bring back its three-year notes to help cover the increased borrowing needs.
Still, investors seemed to draw hope on Tuesday from the selection of a new presidential administration, while shrugging off the latest in a series of grim economic reports. The Dow Jones industrial average surged more than 300 points. The Dow and the other major stock indexes all finished with gains of more than three per cent.
As election results were being announced in the US, Asian stocks rallied on Wednesday. Japan's Nikkei 225 stock average climbed 2.9 per cent, while Hong Kong's Hang Seng Index surged 6.1 per cent. South Korea's Kospi jumped 5.5 per cent.
Futures trading also initially indicated a slightly firmer opening for Wall Street stocks yesterday. Dow futures rose 15, or 0.2 per cent, to 9,602 shortly after news emerged of Obama's election win.
Analysts said investors appeared to be looking forward to the end of political uncertainty and hoping the new US president will move to boost the economy, which got another bit of dismal news on Tuesday.
Data
The Commerce Department reported on Tuesday that factory orders dropped 2.5 per cent in September from August, more than three times as much as analysts had expected. Excluding autos and aircraft, orders fell 3.7 per cent, the steepest drop since 1992, when the department began tracking sector-specific changes.
The weakness was led by a heavy drop in nondurable goods orders, which fell 5.5 per cent. That included a 17 per cent drop in the value of petroleum and coal products, reflecting the decline in oil and gas prices in September.
Analysts said the report was not as bad as it looked, because much of the decline was driven by the drop in the value of oil and gas orders.
But orders for non-defence capital goods excluding aircraft, considered a good indication of business investment plans, fell 1.5 per cent.
"Corporate America is buying into the recession story, and they are paring their investment spending accordingly," said Ken Mayland, president of ClearView Economics.
Automakers also reported terrible October sales figures on Monday, with sales down 45 per cent at General Motors, 30 per cent at Ford, 25 per cent at Honda and 23 per cent at Toyota.
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