Regardless of the bailout plan’s fate, economies continue to slow sharply, with Ireland and New Zealand both sliding into full blown recessions within 24 hours of each other.
US new home sales slumped, Japanese exports to the US fell by a record amount in August and major Japanese car companies have slashed production at home and around the world as they try to meet falling demand.
New Zealand and Ireland have been slowing for months, with slumping housing sectors the main drivers, as it has been in Spain, Denmark, the UK, parts of France and of course the US.
New Zealand’s economy contracted last quarter, driving the nation into its first recession in 10 years. The economy contracted 0.2% from the first quarter when it declined 0.3% from December. Growth in the year to June was still a positive 1%.
The decline was smaller than forecast, but it justified the two rate cuts from the Reserve Bank of New Zealand, the last of 0.50%.
Ireland’s decline is symptomatic of what’s happening in Europe. It’s economy was by far the best performing eurozone economy since the birth of the single currency in 1999 (remember all those stories about the “Celtic Tiger”). But it is now the first economy in the 15-country region to fall into recession.
Irish gross domestic product shrank by half a per cent in the second quarter and has been negative for two consecutive quarters — the technical definition of recession. Economists now expect growth to fall by between 0.5% and 2% over the next year as the plunge in building spreads to the rest of the country’s businesses.
Germany, France and Italy — also face a significant risk of recession after previously reporting a fall in GDP in the second quarter and pushing the eurozone as a whole into a contraction in the quarter.
But the significant economic news came from Japan, where exports plunged, forcing the company to report a rare trade deficit in August, and in the US where housing and output both tumbled by far more than expected.
Exports to the US fell by a record 22% in August, and not even solid sales to China (up 8%) could make up for that drop, and a sharp fall in shipments to Europe. High oil prices forced import costs higher, squeezing the trade account even further. Major Japanese car makers, Toyota, Nissan and Honda all reported they had cut output in Japan and around the world in August.
Toyota’s worldwide production fell a huge 17% in the month, led lower by a 16% cut in Japan and an 18% cut in overseas production.
New home sales in the US fell to a 17 year low last month. It was far worse than forecast by the market.
The US Census Bureau said that new home sales fell to an annual rate of 460,000 in the month, down 11.5% from a revised 520,000 rate in July. The August rate of sales was a massive 34.5% lower than August last year.
Sales were at their lowest pace since January 1991, when the first Gulf War started, and the US economy was near the bottom of the second oil price shock-induced recession.
The Census Bureau said that in original terms (not seasonally adjusted), just 39,000 new homes were sold in America in August.
The median price of a new home sold in August was $US221,900, down 5.5% from $US234,900 in July and down 6.2% from $US236,500 in August 2007. The backlog eased as fewer new homes are built, but as a proportion of actual sales, jumped to nearly 11 months’ supply.
And in a worrying development for the US economy and third quarter growth, durable goods orders (for products that last longer that three years) saw the the biggest fall since the start of the year as orders for cars and planes plunged. Even after excluding these sectors, orders were down 3%-5%, according to the US Department of Commerce.
August’s drop ended three consecutive monthly increases which boosted hopes of a slow rebound. With inventories rising and industrial production, retail sales and housing all negative, plus unemployment rising, the US economy is in for a rough time.