(WASHINGTON) Signs of sluggish growth continue to beset the US economy with orders to US factories for big-ticket manufactured goods plunging in January by the largest amount in five months, even as Federal Reserve chairman Ben Bernanke sent a fresh signal that the central bank will again lower interest rates.
The Commerce Department reported yesterday that new orders dropped by 5.3 per cent last month, reflecting declines across a wide swath of industry from commercial aircraft and cars to heavy machinery and computers as manufacturers got caught in the weakness engulfing the rest of the economy.
The worse-than-expected decline was the latest in a string of reports indicating that the economy, battered by a prolonged slump in housing, a serious credit squeeze and soaring energy prices, is in danger of toppling into a recession.
‘The economic situation has become distinctly less favourable’ since the summer, the Fed chief told the House Financial Services Committee in his semiannual economic report to Congress.
Since Mr Bernanke’s last such assessment last summer, the housing slump has worsened, credit problems have intensified and the job market has deteriorated. Mr Bernanke said that the confluence of these factors has turned people and businesses alike to adopt a more cautious attitude towards spending and investment. This, he said, has further weakened the economy.
Incoming barometers continue to ’suggest sluggish economic activity in the near term’, Mr Bernanke told the House Financial Services Committee. At the same time, he added, the Fed must keep a close eye on inflation given the recent runup in energy and other prices paid by consumers and businesses.
For now, though, the No. 1 battle is shoring up the economy.
Mr Bernanke pledged anew to slice a key interest rate to help the wobbly economy, which many fear is on the verge of a recession – or possibly has already toppled into one.
The Fed ‘will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks’, Mr Bernanke said, hewing closely to assurances he offered earlier this month A growing number of analysts believe the economy will slip into a recession this quarter although they expect the downturn to be short and mild, thanks to aggressive interest rate cuts from the Federal Reserve and a US$168 billion economic stimulus package passed by Congress earlier this month.
Source: AP, AFP, Reuters (Business Times 28 Feb 08)
