TNJ - October 2001 - Editor's Note - Initiatives Rigged in Controversy by Njeru Waithaka

Editor's Note
January 2002

A Bright Economic Horizon

by Njeru Waithaka

Never before has the economy been faced with dimmer prospects for recovery than at present, but there is much cause for optimism even with the massive layoffs, shrinking pay raises and worries about jobs.
As was the case before the attacks on the Twin Towers and the Pentagon on Sept. 11, consumer spending continues to be strong as is evident in rising store and car sales.

Although the unemployment rate is expected to rise until the economy springs up from its present trend of 3 percent growth rate, partly a result of a recession in the manufacturing and technology sectors, consumer spending is expected to grow quickly enough—at an annual rate of 2 percent per year in the months ahead—to counteract the effects of the declining technology sector, rising unemployment and falling exports.

According to data from the federal government, the Energy Information Administration, the Mortgage Bankers Association, and the Federal Reserve Bank, strength in consumer spending is fueled by the recent tax rebate, lower mortgage rates, falling energy prices, and reduced interest rates, which have put billions of dollars in the hands of households, improving their buying power and raising their confidence.

The government has instituted industry subsidies and loans, tax cuts for businesses and consumers, and new spending, all of which insure liquidity in the economy. The $38 billion tax rebate for households has gone into savings and debt-payments, and its effect is being felt in installment credit, which has grown at a monthly rate of $2.6 billion compared with its average growth of $9.6 billion before the rebate. Mortgage rates fell to 6.5 percent in December from 7.3 percent in January, resulting in a sharp rise in refinancing, which is expected to free up about $100 billion in cash and benefit households through savings.

That is not all. Consumer budgets are getting a boost from declining energy prices, coming right on the heels of the recent failure of oil producing countries to impose output quotas. A barrel of crude oil is now selling below $18, and if that price remains the same or does not increase by much consumers will save about $50 billion by June 2002 from lower prices in gas and from cheaper heating oil.

Monetary policy has seen to massive interest rate cuts by the Federal Reserve Bank and, combined with a drop in long-term interest rates, has rekindled investor confidence in the stock market. News reports could not have been more encouraging than in the second week of October when the American stock market rose sharply with most major averages having recovered from losses they suffered after Sept. 11. Companies such as General Electric reported earnings on a par with or exceeding analysts’ expectations.

In late November, stocks were up 20 percent or more from their September lows, which made some experts to proclaim the return of the bull market. The November news, which coincided with the defeat of the Taliban in Afghanistan, not only indicated rekindled hope among investors, but also the resilience inherent among consumers and businesses to weather even the severest of economic storms.

Click here for November 2001 Editor's Note - Initiatives Rigged in Controversy

Click here for April 2001 Editor's Note - The Good Competition

Click here for February 2001 Editor's Note - The Perennial Debate

Click here for January 2001 Editor's Note - The Beleaguered Media

Click here for October 2000 Editor's Note - Selling Out Cheaply

Click here for September 2000 Editor's Note - A Question of Trust

Click here for July / August 2000 Editor's Note - Value In Differences

Click here for June 2000 Editor's Note - Be Wary of Numbers

Click here for May 2000 Editor's Note - A Sobering Reminder