American industrial production recovered in October from the storm and strike-induced fall in September, but was still sharply lower than a year ago. Production of cars, electricity, machinery, appliances of all types, computers were all lower.

It was the latest gloomy news from the world’s biggest economy (industrial production is now 3.7% lower than July of this year alone, and 4.6% down October 2007, such has been the slump).

The Fed also reported that manufacturing activity in the New York area sank again last month.

At the same time Citigroup confirmed that it will sack upwards of 50,000 employees, most of them in the US. That’s after 23,000 were sacked earlier in the year. Many of the offshore jobs will go in London where unemployment is now rising at a rate similar to that in the US.

Some US economists are now warning that November’s increase in jobless numbers will top 300,000 after hitting 259,000 in October and 284,000 in September. If that happens the unemployment rate will hit 7%, up from 6.5% at the moment, and will top 6% in the UK this quarter.

But it’s not much better elsewhere. Last week we heard how the Eurozone, led by Germany and Italy, had slipped into recession, and yesterday it was the turn of the world’s second biggest economy, Japan, to dip into negative territory for the second quarter in a row.

And in India, which has been Australia’s fastest growing export market in the past three years, the central bank was forced to boost liquidity sharply at the weekend and to underwrite trade credits because of the crunch and the way letters of credit financing from banks (essential to two way trade) has dried up.

The news yesterday that Japan had joined Germany, Ireland, New Zealand and Italy in recession didn’t come as a tremendous surprise.

Yesterday, data from the government in Australia’s biggest trading partner, showed that third quarter growth contracted 0.1%, after 0.9% contraction in the June quarter (0.4% annualised compared with an annualised fall of 3.7% in the June quarter).

The contraction in Japan’s economy was mainly the result of a 1.7% drop in business investment in the third quarter as exporters cut demand for new equipment and upgrades as they sold less overseas.

The preliminary estimate released by the Cabinet Office in Tokyo will be updated in a couple of weeks when more information about trade and a couple of other items becomes available, but it seems that forecasts from the IMF and OECD of a recession are right. Both groups are forecasting Japanese growth to be negative 0.2% next year.

Economists had in fact forecast a rise of 0.1% after the contraction in the June quarter.

The sluggish economy can be seen in the slump in activity in retailing, cars, exports, machinery orders and in spending generally. It’s weak and not confident. A sharp rise in the value of the yen (up 9.5% since the end of the quarter) if anything have worsened conditions, especially for exporters which remain the heart and soul of the economy.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey