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More Stormclouds Over US Economy - 2002-08-14


After a two-week rebound, U.S. financial markets are again under pressure with stock prices lower. The markets are concerned about airline bankruptcies and signs of a possible renewed economic downturn.

At its Tuesday meeting the Federal Reserve declined to cut interest rates but warned of possible future economic weakness. Wall Street fell on the news and the sell-off continued Wednesday. With US Airways seeking bankruptcy protection last Sunday, attention shifted to another vulnerable but much bigger carrier, United, whose stock price declined 40 percent in two days.

President Bush at an economic forum in Texas Tuesday minimized the bad news and said the economic outlook is positive. A day later Wednesday in Milwaukee the president elaborated on the same theme.

"Even though folks are optimistic about the future, there's been a little shaking in our confidence," he said. "People are concerned and I can understand that. But one of the things that rang true to me yesterday [at the forum] and every time I make a stop here in Americais that we should never lack confidence in our character. And the character of the American people."

Some forecasters worry that the struggling U.S. economy could slip into its second recession in as many years. They say the five-month-long decline in the stock market suggests the economy will remain weak for many more months.

Tim O'Neill, chief economist at the Bank of Montreal and president of the National Association of Business Economics, emphasizes that his members see little danger of recession.

"The primary reason the members seem to reasonably confident is that they feel there is sufficient support for growth from both monetary and fiscal policy," he explained.

The weak economy means more job cuts. American Airlines says it will try to return to profitability by laying off another seven thousand workers and reducing the number of airplanes in service. IBM, the big computer company, says it plans to reduce its work force by another 15,000.

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