As the US bailout moves towards the ratification process in the US Congress, keep an eye on the economy, because that’s where the next batch of bad news is coming from, especially the banks.

Friday night our time sees the September unemployment figures and economists are now tipping the first 100,000 loss month so far this slowdown.

That will still leave the unemployment rate at 6.1%, but it’s open to question because forecasters missed the 0.5% surge in the rate in August after forecasting no change.

Jobless claims in the US hit a seven year high last week, so economists are gloomy about September and the rest of 2008. The financial crisis will tip thousands of people into the jobless market.

Estimates from a Reuter’s survey suggest that the number of jobless could have risen 100,000 or more last month, which would take the losses so far to over 700,000 and accelerating. Revisions to previous months could boost that figure. The unemployment rate is tipped to remain at 6.1%, but economists missed that sharp rise in July to that level, so it could very well happen again.

Friday saw a sharp cut in the annual rate of growth in the US economy in the second quarter. The third estimate put the annual rate at 2.8%, down from the surprisingly high 3.3% in the second estimate, but still above the initial stab in the dark of 1.9%.

While better than the contraction in the last quarter of 2007 and the rise of 0.9% in the first quarter, the latest estimate was reduced for worrying reasons.

US Commerce Department estimates revealed the reasons for the downgrade were lower than expected consumer spending and US exports, both of which didn’t grow as much during the three months to June than previously estimated.

The figures show consumer spending rose, thanks to that huge tax rebate, by an annual 1.2% rate, down from the 1.7% growth rate estimated previously. Exports jumped by a still strong 12.3% yearly rate in the quarter, lower than the second estimate of 13.2%, but up from the 5.1% rate in the first quarter.

It’s not just leveraged financial groups that are under pressure. Pilgrim’s Pride, America’s biggest chicken meat company, now has its head on the chopping block, too.

The bailout won’t help at this stage because there are too many needy banks and financial groups ahead, but it may give Pilgrim’s Pride some breathing space.

Believe it or not, the company may become the latest victim of excessive leverage. Its shares tanked by nearly 90% last week and closed at $US3.55. Shades of Washington Mutual.

Rumours spread Wednesday that the food giant was having problems, but on Thursday it revealed it might breach its debt covenants when its quarter finished on Saturday. It has obtained a month-long waiver from its lenders as it tries to fix its business and negotiate a new agreement with its banks.

It has long-term borrowings of over $US1.5 billion and on Friday was valued at just $263 million, a clearly unsustainable position. US reports said it was trying to sell assets but the bank lending freeze and financial turmoil is making that and other attempts to find new cash reserves difficult. It may have to sell assets in Mexico quickly to raise more cash. It built its debt by expanding through acquisitions when credit was free and easy.

US industrial giant, General Electric, last week cut earnings for a second time this year, suspended a share buyback program and committed itself to boosting capital to offset growing worries that huge losses in its financial division from poor home and commercial mortgage deals might cripple the group.

And in Britain, the iconic MFI kitchen and bathroom group has been saved from collapse at the last minute after the credit crunch threatened to put it out of business. Its management team raised enough money from backers to keep its 200 stores open, and save most of the 2,500 jobs that had been on the line all weekend.

Its problems came to a crunch over the weekend as it needed to raise around $A40 million to meet its quarterly rental bill to its landlords by tonight, our time. Its problems are being shared by more and more retailers. The UK furniture group, Rosebys, collapsed late last week and the Hardy Amies group has seen its shares suspended as it hovers on the edge of failure.

Britain’s housing slump has hit retailers and other business hard (besides the banks, that is and real estate agents). Furniture, kitchens, bathrooms and homewares retailers have been hard hit and the UK’s biggest plumbing business, Wolseley, has sacked 7,000 workers and last week said it was shutting 270 branches.

Peter Fray

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