STIMULUS KICK: HOUSEHOLD PURCHASES UP 3.4%
With the US economy rising like a Phoenix, the hopes of global economies are also soaring. The Indian IT industry caught the vibes early
Bloomberg WASHINGTON
THE US economy grew in the third quarter for the first time in more than a year, propelled by stimulus-driven gains in consumer spending and home building. The world’s largest economy expanded at a 3.5% pace from July through September, exceeding the median estimate of economists surveyed by Bloomberg News, after shrinking the previous four quarters, figures from the commerce department showed in Washington on Thursday. Household purchases climbed 3.4%, the most in more than two years.
Policy-makers will now focus on whether the recovery, supported by federal assistance to the housing and auto industries, can be sustained into 2010 and generate jobs. The record $1.4-trillion budget deficit limits president Barack Obama’s options for more aid, while Federal Reserve officials try to convince investors that the central bank will exit emergency programmes in time to prevent a pickup in inflation.
“A lot of this is thanks to government support,” Kathleen Stephansen, chief economist at Aladdin Capital Holdings in Stamford, Connecticut, said. “We still have major headwinds for the consumer. That worries me. The consumer, in fact private demand in general, is not ready yet to pick up the growth baton from the government.”
Stock-index futures jumped after the better-thananticipated reading on growth. The contract on the Standard & Poor’s 500 Index was up 1% to 1,048.8 at 9:03 am in New York. Treasury securities fell.
Jobless Claims: A report from the labour department showed that 530,000 workers filed claims for jobless benefits last week, more than anticipated and signalling the job market is slow to heal even as growth picks up.
The economy shrank 3.8% in the 12 months to June, the worst performance in seven decades. The four consecutive decreases through the second quarter marks the longest stretch of declines since quarterly records began in 1947.
OBAMA’S SPADEWORK: INDIAN YIELD
What does it mean for the markets:
The markets may show a modest gain but will also have to price in the drop in profits of Reliance. The bright spot is that policy makers believe that capital flows will improve. Global currency markets can see a brief dollar rally.
For the economy:
The RBI will have to grapple with the issue of inflows and volatile markets while the government may wait for actual growth signs or the next quarter. However, the US recovery could also mean higher oil prices Local interest rates may not inch up as quickly as feared since loan demand is low and corporates access other sources of financing.
For Corporates:
Corporates are keeping their fingers crossed but there is a sense of hope that US -the biggest consumer is coming out of the slump. One will see improvement in investments in projects by corporates. Many were waiting for signs of revival of demand to execute their capex plans.
For Exporters:
It is time for the exporters to pile up stocks as one has been seeing sequential improvement in exports in the last two-three months. However, a lot would depend on how wisely they hedge their currency risks in the face of capital inflows and appreciating rupee.
On Exports:
IT, textiles, pharma, auto components, and steel could be big beneficiaries.
ANDY MUKHERJEE
WE’VE ONLY JUST BEGUN
THE US ECONOMY MAY have come out of its worst recession since 1930s. But is it out of the woods? Not really, not yet. Almost half of the GDP expansion last quarter was accounted for by motor vehicles, which got produced primarily because of the “cash for clunkers” programme. That subsidy is gone. A tax credit for firsttime homebuyers is set to expire this month. With fiscal stimulus on the wane, future growth will depend on a further decline in the rate at which businesses are shedding inventories. A revival in genuine, privatesector demand will have to wait for the world’s biggest economy to stop haemorrhaging jobs. And that’s still some time away.
