The manufacturing sector has been a key source of growth since the recession officially ended and it likely expanded again in October.
Economists forecast that the Institute for Supply Management's manufacturing index rose slightly last month to 52 from 51.6 in September. Readings above 50 indicate expansion.
The private trade group of purchasing managers will release the report at 10 a.m. Eastern on Tuesday.
The index hit a two-year low of 50.6 in August, contributing to fears that the economy was at risk of slipping into recession. The gain in September was among data that helped calm those worries. Last week, the government said that the economy expanded at an annual pace of 2.5 percent in the July-September quarter, the best quarterly growth in a year.
Manufacturing has grown for 26 straight months, according to the index. Factories were among the first businesses to start growing after the recession officially ended in June 2009.
However, factory activity slowed this spring. Consumers cut back on purchases in the face of higher prices for gas and food. And the March earthquake in Japan disrupted supply chains, which slowed U.S. auto production.
Factory output has picked up since then. Businesses are buying more industrial machinery and heavy equipment. Business spending on equipment and software was a key driver of growth in the third quarter.
Consumers are spending more, too. A key reason for the strong growth over the summer was that consumers stepped up their spending at a 2.4 percent at an annual rate -- nearly triple the growth from spring.
Much of that spending was on big-ticket items, such as appliances and electronic goods.
Auto sales are also rising, providing another lift to manufacturers. Sales picked up in September as the disruptions faded. Economists expect a modest increase in October.
Still, the economy isn't growing fast enough to lower the unemployment rate, which has been near 9 percent for more than two years. Growth needs to nearly double the 2.5 percent pace from this summer to have a significant impact.
Economists doubt consumers can keep spending like they did this summer without earning more. For that to happen, employers need to step up hiring.
In recent months, job growth has stagnated. Employers have added an average of only 72,000 jobs per month in the past five months. That's far below the 100,000 per month needed to keep up with population growth. And it's down from an average of 180,000 in the first four months of this year.
Employers added only 103,000 jobs in September. The unemployment rate stayed at 9.1 percent for a third straight month.
The government releases the October employment report Friday. Economists forecast that employers added 100,000 jobs last month and unemployment remained stuck at 9.1 percent.
The ISM is a trade group of purchasing managers based in Tempe, Ariz. It compiles its manufacturing index by surveying about 300 purchasing managers across the country.
MF Global is first big US victim of Europe crisis
The European debt crisis has claimed its first big casualty on Wall Street, a securities firm run by former New Jersey Governor Jon Corzine.
MF Global Holdings Ltd., which Corzine has led since early last year, filed for bankruptcy protection Monday. Concerns about the company's holdings of European debt caused its business partners to pull back last week, which led to a severe cash crunch, the company said in its filing.
In a statement, the Securities and Exchange Commission and the Commodity Futures Trading Commission said that they and other regulators had been closely monitoring MF Global's situation for several days "in anticipation of a transaction that would include the transfer of customer accounts to another firm."
MF Global told the regulators early Monday that it hadn't reached an agreement on a deal and it reported "possible deficiencies" in customers' futures trading accounts, the two agencies said.
Corzine, the former head of investment banking giant Goldman Sachs Group Inc., oversaw MF Global as it amassed $6 billion in debt issued by financially strapped European countries such as Italy, Spain and Portugal. Their bonds paid bigger returns than U.S. Treasury debt because bond investors believed that they were more likely to default.
That bet eventually doomed the company. A regulator complained last month that it was overvaluing European debt, forcing it to raise more money, according to the papers it filed with U.S. Bankruptcy Court for the Southern District of New York.
MF Global's bankruptcy is the eighth-biggest ever in the U.S., according to the research firm BankruptcyData.com. It's bigger than Chrysler LLC's in 2009 and smaller than those of financial-crisis casualties Lehman Brothers Holdings Inc., Washington Mutual Inc. and CIT Group Inc.
Last week, MF Global reported its biggest ever quarterly loss, and rating agencies downgraded its debt. Its stock plunged 66 percent. Spooked business partners required it to post more money to guarantee its trades.
Soon short of cash, MF Global looked for outside investors or buyers, but no alternative emerged before regulators' Monday deadline, the company told the court. Trading in shares of MF Global Holdings Ltd. was halted early Monday.
MF Global's bankruptcy shows the danger of investing when the outcome will be determined by government action, said Daniel Alpert, managing partner at the New York investment bank Westwood Capital Partners LLC.
"I don't think it's a canary in the coal mine, but it does show you that it's still a very volatile market," he said. "The nature of this crisis is that events can lead in any number of ways, and markets are trading on news, not numbers."
The SEC and the CFTC said they have determined that a bankruptcy proceeding overseen by the industry-funded Securities Investor Protection Corp., whose mandate is to protect investors when a brokerage firm fails, "would be the safest and most prudent course of action to protect customer accounts and assets." SIPC, which can provide up to $500,000 for each customer of a failed brokerage, announced separately Monday that it is beginning the liquidation of MF Global under its customary procedures.
MF Global's big bet on Europe might not have happened before Corzine joined. Until he joined, the company was known mainly as a dealer in derivatives, which are investments based on the value of some underlying asset. Corzine wanted to build MF Global into a major investment bank.
One method: Trading for the bank's own profit, a practice known as proprietary trading. Corzine made his career at Goldman as a trader, and the company became a trading powerhouse under his watch.
Proprietary trading was responsible for much of MF Global's quarterly loss, it said in court papers.
As of last week, MF had amassed net exposure of $6.29 billion in debt issued by Italy, Spain, Belgium, Portugal and Ireland. Of that, $1.37 billion was from Portugal and Ireland, which already were bailed out by European authorities. More than half was from Italy, whose borrowing costs increased in recent days as investors grew concerned about its finances.
By comparison, Morgan Stanley's net exposure to those countries was only $2.1 billion as of Sept. 30, according to its latest quarterly filing. Morgan Stanley's stock was battered last month because of concerns about its exposure to European debt.
Corzine was hopeful that European leaders would solve the crisis and protect the value of MF Global's holdings before investors grew wary. Last week, he said he expected the firm to "successfully manage these exposures to what we believe will be a positive conclusion in December 2012."
MF Global turned a profit just three quarters out of the past 12.
Corzine also is a top fundraiser for President Barack Obama. Corzine has helped raised at least $500,000 for Obama's re-election campaign since April, according to records released by the campaign.
At worst, MF Global's bankruptcy could roil credit markets and make financial companies reluctant to lend to each other. But the impact on markets will likely be muted, said Karen Shaw Petrou of Federal Financial Analytics.
"It appears their exposure to risk was particularly acute," she said.
MF Global's bankruptcy has prompted comparisons to Lehman Bros., whose 2008 failure touched off a global credit crisis. Even though Lehman was bigger and more intertwined with other companies, investors appeared worried Monday about other financial companies' possible losses, either from deals with MF Global or unrelated losses on European debt.
Bank stocks fell sharply on Wall Street after the bankruptcy filing. Morgan Stanley lost 8.7 percent, Citigroup 7.5 percent, Bank of America Corp. 7.1 percent and Goldman 5.5 percent.
Including its subsidiaries, MF Global has assets of $41.05 billion and liabilities of $39.68 billion, according to its bankruptcy petition.
Petrou said other firms holding European debt might survive the market turmoil if European leaders can convince the world that they are on track to solving the problem.
"It will work as long as the market has confidence in it," she said. "That's what makes this whole situation so spooky -- it's all driven by market confidence, or lack thereof."
AP Business writers Pallavi Gogoi and Chris Kahn in New York and Associated Press writer Ken Thomas and AP Business Writer Marcy Gordon in Washington contributed to this report.
MF Global Holdings Ltd., which Corzine has led since early last year, filed for bankruptcy protection Monday. Concerns about the company's holdings of European debt caused its business partners to pull back last week, which led to a severe cash crunch, the company said in its filing.
In a statement, the Securities and Exchange Commission and the Commodity Futures Trading Commission said that they and other regulators had been closely monitoring MF Global's situation for several days "in anticipation of a transaction that would include the transfer of customer accounts to another firm."
MF Global told the regulators early Monday that it hadn't reached an agreement on a deal and it reported "possible deficiencies" in customers' futures trading accounts, the two agencies said.
Corzine, the former head of investment banking giant Goldman Sachs Group Inc., oversaw MF Global as it amassed $6 billion in debt issued by financially strapped European countries such as Italy, Spain and Portugal. Their bonds paid bigger returns than U.S. Treasury debt because bond investors believed that they were more likely to default.
That bet eventually doomed the company. A regulator complained last month that it was overvaluing European debt, forcing it to raise more money, according to the papers it filed with U.S. Bankruptcy Court for the Southern District of New York.
MF Global's bankruptcy is the eighth-biggest ever in the U.S., according to the research firm BankruptcyData.com. It's bigger than Chrysler LLC's in 2009 and smaller than those of financial-crisis casualties Lehman Brothers Holdings Inc., Washington Mutual Inc. and CIT Group Inc.
Last week, MF Global reported its biggest ever quarterly loss, and rating agencies downgraded its debt. Its stock plunged 66 percent. Spooked business partners required it to post more money to guarantee its trades.
Soon short of cash, MF Global looked for outside investors or buyers, but no alternative emerged before regulators' Monday deadline, the company told the court. Trading in shares of MF Global Holdings Ltd. was halted early Monday.
MF Global's bankruptcy shows the danger of investing when the outcome will be determined by government action, said Daniel Alpert, managing partner at the New York investment bank Westwood Capital Partners LLC.
"I don't think it's a canary in the coal mine, but it does show you that it's still a very volatile market," he said. "The nature of this crisis is that events can lead in any number of ways, and markets are trading on news, not numbers."
The SEC and the CFTC said they have determined that a bankruptcy proceeding overseen by the industry-funded Securities Investor Protection Corp., whose mandate is to protect investors when a brokerage firm fails, "would be the safest and most prudent course of action to protect customer accounts and assets." SIPC, which can provide up to $500,000 for each customer of a failed brokerage, announced separately Monday that it is beginning the liquidation of MF Global under its customary procedures.
MF Global's big bet on Europe might not have happened before Corzine joined. Until he joined, the company was known mainly as a dealer in derivatives, which are investments based on the value of some underlying asset. Corzine wanted to build MF Global into a major investment bank.
One method: Trading for the bank's own profit, a practice known as proprietary trading. Corzine made his career at Goldman as a trader, and the company became a trading powerhouse under his watch.
Proprietary trading was responsible for much of MF Global's quarterly loss, it said in court papers.
As of last week, MF had amassed net exposure of $6.29 billion in debt issued by Italy, Spain, Belgium, Portugal and Ireland. Of that, $1.37 billion was from Portugal and Ireland, which already were bailed out by European authorities. More than half was from Italy, whose borrowing costs increased in recent days as investors grew concerned about its finances.
By comparison, Morgan Stanley's net exposure to those countries was only $2.1 billion as of Sept. 30, according to its latest quarterly filing. Morgan Stanley's stock was battered last month because of concerns about its exposure to European debt.
Corzine was hopeful that European leaders would solve the crisis and protect the value of MF Global's holdings before investors grew wary. Last week, he said he expected the firm to "successfully manage these exposures to what we believe will be a positive conclusion in December 2012."
MF Global turned a profit just three quarters out of the past 12.
Corzine also is a top fundraiser for President Barack Obama. Corzine has helped raised at least $500,000 for Obama's re-election campaign since April, according to records released by the campaign.
At worst, MF Global's bankruptcy could roil credit markets and make financial companies reluctant to lend to each other. But the impact on markets will likely be muted, said Karen Shaw Petrou of Federal Financial Analytics.
"It appears their exposure to risk was particularly acute," she said.
MF Global's bankruptcy has prompted comparisons to Lehman Bros., whose 2008 failure touched off a global credit crisis. Even though Lehman was bigger and more intertwined with other companies, investors appeared worried Monday about other financial companies' possible losses, either from deals with MF Global or unrelated losses on European debt.
Bank stocks fell sharply on Wall Street after the bankruptcy filing. Morgan Stanley lost 8.7 percent, Citigroup 7.5 percent, Bank of America Corp. 7.1 percent and Goldman 5.5 percent.
Including its subsidiaries, MF Global has assets of $41.05 billion and liabilities of $39.68 billion, according to its bankruptcy petition.
Petrou said other firms holding European debt might survive the market turmoil if European leaders can convince the world that they are on track to solving the problem.
"It will work as long as the market has confidence in it," she said. "That's what makes this whole situation so spooky -- it's all driven by market confidence, or lack thereof."
AP Business writers Pallavi Gogoi and Chris Kahn in New York and Associated Press writer Ken Thomas and AP Business Writer Marcy Gordon in Washington contributed to this report.
Ahead of the Bell: Construction spending
U.S. builders likely increased spending on homes, office buildings and other projects in September for the second straight month.
Economists expect construction spending rose 0.3 percent, according to a survey by FactSet. September's report will be released at 10 a.m. Eastern time on Tuesday.
In August, construction spending rose 1.4 percent. The increase was spurred by a jump in spending on government projects, such as roads and schools.
Building activity reached a seasonally adjusted annual rate of $799.1 billion. That's 4.8 percent above an 11-year low hit in March. But it's barely more than half the $1.5 trillion pace considered healthy.
Analysts say it could be four years before construction returns to healthy levels. A dismal outlook for housing and a weak economy have forced governments to cut spending and builders to scale back construction plans.
Housing construction, in particular, has all but stalled. Americans bought fewer homes during this year's peak buying season than at any time in the past half-century. Unemployment is stuck above 9 percent, and many people are fearful about buying a home out of concern they could lose their jobs or home prices could fall further.
State and local governments have been forced to cut back because of severe budget problems, while the federal government has come under pressure to get control of soaring budget deficits.
In September, sales of new homes rose after four straight monthly declines, largely because builders had cut prices in the face of depressed demand. This year is shaping up to be the worst for new-home sales on records dating to 1963.
While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
Builders are struggling to compete with foreclosures and short sales -- when lenders accept less for a house than a mortgage is worth. Those homes are selling at an average discount of 20 percent, and they are lowering neighboring home values.
Home builders started projects in September at the fastest pace in 17 months, a hopeful sign for the economy. But most of the gain was driven by a surge in volatile apartment construction, a sign that many are choosing to rent rather than own a home.
The weak sales and construction figures underscores how badly the housing market is faring and suggests a sustained recovery is years away. It will also impact home prices, continuing to drive them lower.
Economists at Moody's Analytics say prices might stop falling by early next year, but they don't expect a healthy recovery until 2015 at the earliest.
Economists expect construction spending rose 0.3 percent, according to a survey by FactSet. September's report will be released at 10 a.m. Eastern time on Tuesday.
In August, construction spending rose 1.4 percent. The increase was spurred by a jump in spending on government projects, such as roads and schools.
Building activity reached a seasonally adjusted annual rate of $799.1 billion. That's 4.8 percent above an 11-year low hit in March. But it's barely more than half the $1.5 trillion pace considered healthy.
Analysts say it could be four years before construction returns to healthy levels. A dismal outlook for housing and a weak economy have forced governments to cut spending and builders to scale back construction plans.
Housing construction, in particular, has all but stalled. Americans bought fewer homes during this year's peak buying season than at any time in the past half-century. Unemployment is stuck above 9 percent, and many people are fearful about buying a home out of concern they could lose their jobs or home prices could fall further.
State and local governments have been forced to cut back because of severe budget problems, while the federal government has come under pressure to get control of soaring budget deficits.
In September, sales of new homes rose after four straight monthly declines, largely because builders had cut prices in the face of depressed demand. This year is shaping up to be the worst for new-home sales on records dating to 1963.
While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.
Builders are struggling to compete with foreclosures and short sales -- when lenders accept less for a house than a mortgage is worth. Those homes are selling at an average discount of 20 percent, and they are lowering neighboring home values.
Home builders started projects in September at the fastest pace in 17 months, a hopeful sign for the economy. But most of the gain was driven by a surge in volatile apartment construction, a sign that many are choosing to rent rather than own a home.
The weak sales and construction figures underscores how badly the housing market is faring and suggests a sustained recovery is years away. It will also impact home prices, continuing to drive them lower.
Economists at Moody's Analytics say prices might stop falling by early next year, but they don't expect a healthy recovery until 2015 at the earliest.
US auto sales pace quickens in October
People who put off buying cars this summer because Japanese brands were in tight supply returned to the market in October, lifting U.S. auto sales to their fastest pace in two years.
Automakers will report sales for October on Tuesday.
Car information site Edmunds.com predicts sales of more than 1 million cars and trucks for the month. When adjusted for seasonal factors, that would be the best pace since the Cash for Clunkers program in August 2009. J.D. Power and Associates also says October sales finished strong, although it forecast a slightly slower pace.
Edmunds economist Lacey Plache called October a "mini-bubble" and said she expects the sales pace to fall off a bit once pent-up demand is satisfied. But Edmunds still expects total U.S. sales to rise by nearly 1 million vehicles to 13.5 million in 2012 compared to 2011. An improving economy, better credit availability and an aging fleet of vehicles on the road all point to higher sales in 2012.
Pent-up demand drove October sales. Many buyers were waiting to Japanese car inventories to improve after the March earthquake and tsunami in Japan cut supplies. Toyota Motor Corp., Honda Motor Co. and Hyundai Motor Co. will be the biggest market share gainers in October, Edmunds said.
Because they had more vehicles at dealerships, Japanese carmakers also offered more deals, which drew in buyers. TrueCar.com estimated that Toyota's incentives were up 13 percent from last October, while Honda's were up 18 percent. Detroit automakers showed little change in their incentive levels. The average incentive offer was $2,669 per vehicle in October, up 5 percent from last year, TrueCar said.
Truck buyers also were out in force in October, drawn partly because of automakers' traditional "Truck Month" promotions. That's a good sign for the economy, since large truck buyers are generally people who need trucks for construction or other work.
Falling gas prices might also be helping push some buyers off the fence and into dealerships. Gas prices now average $3.46 per gallon nationwide, down from a peak of nearly $4 in May.
Automakers will report sales for October on Tuesday.
Car information site Edmunds.com predicts sales of more than 1 million cars and trucks for the month. When adjusted for seasonal factors, that would be the best pace since the Cash for Clunkers program in August 2009. J.D. Power and Associates also says October sales finished strong, although it forecast a slightly slower pace.
Edmunds economist Lacey Plache called October a "mini-bubble" and said she expects the sales pace to fall off a bit once pent-up demand is satisfied. But Edmunds still expects total U.S. sales to rise by nearly 1 million vehicles to 13.5 million in 2012 compared to 2011. An improving economy, better credit availability and an aging fleet of vehicles on the road all point to higher sales in 2012.
Pent-up demand drove October sales. Many buyers were waiting to Japanese car inventories to improve after the March earthquake and tsunami in Japan cut supplies. Toyota Motor Corp., Honda Motor Co. and Hyundai Motor Co. will be the biggest market share gainers in October, Edmunds said.
Because they had more vehicles at dealerships, Japanese carmakers also offered more deals, which drew in buyers. TrueCar.com estimated that Toyota's incentives were up 13 percent from last October, while Honda's were up 18 percent. Detroit automakers showed little change in their incentive levels. The average incentive offer was $2,669 per vehicle in October, up 5 percent from last year, TrueCar said.
Truck buyers also were out in force in October, drawn partly because of automakers' traditional "Truck Month" promotions. That's a good sign for the economy, since large truck buyers are generally people who need trucks for construction or other work.
Falling gas prices might also be helping push some buyers off the fence and into dealerships. Gas prices now average $3.46 per gallon nationwide, down from a peak of nearly $4 in May.
World stocks down on Europe debt plan doubts
World stock markets sank Tuesday as new concerns emerged about the viability of a much-heralded plan to contain Europe's debt crisis.
Benchmark oil fell below $92 a barrel. The dollar surged against the euro, and it rose slightly against the yen -- a day after jumping about 5 percent following Japan's move to buy dollars and sell the strong yen to protect its exporters.
European shares slid in early trading. Britain's FTSE 100 tumbled 2.6 percent to 5,401.98 and Germany's DAX dived 3.8 percent to 5,910.15. France's CAC-40 lost 3.3 percent to 3,139.55.
Wall Street was headed for a second day of losses, with Dow Jones industrial futures dropping 1.1 percent and S&P futures recoiling 1.6 percent.
Stock markets in Asia didn't fare much better. Japan's Nikkei 225 index retreated 1.7 percent to close at 8,835.53. Hong Kong's Hang Seng lost 2.5 percent to 19,369.96 and Australia's S&P/ASX 200 shed 1.5 percent to 4,232.90. Benchmarks in Singapore, India, Indonesia and Thailand were also down.
South Korea's Kospi gained marginally to 1,909.63 and China's Shanghai Composite Index added 0.1 percent to 2,470.02.
Markets were on edge as events in Europe undermined optimism about the debt crisis deal that European leaders agreed last week to shore up the continent's banks and prevent Greece from defaulting.
Greek Prime Minister George Papandreou on Monday said that his debt-strapped country will hold a referendum on whether to accept the European deal -- complicating an already elaborate implementation process.
"That puts everything in question. No longer do you have Greece backing it," said Andrew Sullivan, principal sales trader at Piper Jaffray in Hong Kong. "It is putting another level of uncertainty into it, and the markets don't like uncertainty."
Another troubling sign is that borrowing costs for Italy and Spain have increased, showing that traders remain worried about those countries' ability to pay their debts.
Confidence has also been shaken by the collapse of the brokerage house MF Global. The securities firm filed for bankruptcy protection after it was downgraded by ratings agencies for holding too much European debt.
Meanwhile, surveys showing China's manufacturing remained sluggish in October also weighed on investor sentiment. Hong Kong-listed shares of GOME Electrical Appliance Holdings, China's largest appliances retailer, plunged 7.8 percent. Anhui Conch Cement Co. fell 6.4 percent.
Qantas Airways rose 1.1 percent as the world's 10-largest airline took to the skies again after a debilitating series of strikes and subsequent staff lockout were halted by an Australian court.
Weak earnings weighed on some shares.
Japanese consumer electronics giant Panasonic Corp. tumbled 5.1 percent, a day after reporting a quarterly loss and projecting a huge annual loss due to slumping TV sales and a strong yen.
Australian retailer Harvey Norman fell 3.7 percent after the company reported a drop of almost 20 percent in pretax earnings in the three months to September.
Chinese automaker BYD, which is backed by billionaire investor Warren Buffet, rose by the daily limit of 10 percent. While the company's profit fell nearly 86 percent to 352.7 million yuan ($55.5 million) in January-September, it jumped nearly sixfold in the third-quarter from a very low base the year before, as sales were energized by the introduction of new models.
Wall Street tumbled Monday, with the Dow Jones industrial average spiraling down 2.3 percent to 11,955.01. The S&P 500 fell 2.5 percent to 1,253.30, and the Nasdaq composite fell 1.9 percent to 2,684.41.
In energy trading, benchmark crude for December delivery was down $1.75 at $91.44 a barrel in electronic trading on the New York Mercantile Exchange. The contract slipped 13 cents to settle at $93.19 in New York on Monday.
The euro fell to $1.3701 from $1.3924 late Monday in New York. The dollar rose slightly to 78.09 yen from 78.05 yen.
Benchmark oil fell below $92 a barrel. The dollar surged against the euro, and it rose slightly against the yen -- a day after jumping about 5 percent following Japan's move to buy dollars and sell the strong yen to protect its exporters.
European shares slid in early trading. Britain's FTSE 100 tumbled 2.6 percent to 5,401.98 and Germany's DAX dived 3.8 percent to 5,910.15. France's CAC-40 lost 3.3 percent to 3,139.55.
Wall Street was headed for a second day of losses, with Dow Jones industrial futures dropping 1.1 percent and S&P futures recoiling 1.6 percent.
Stock markets in Asia didn't fare much better. Japan's Nikkei 225 index retreated 1.7 percent to close at 8,835.53. Hong Kong's Hang Seng lost 2.5 percent to 19,369.96 and Australia's S&P/ASX 200 shed 1.5 percent to 4,232.90. Benchmarks in Singapore, India, Indonesia and Thailand were also down.
South Korea's Kospi gained marginally to 1,909.63 and China's Shanghai Composite Index added 0.1 percent to 2,470.02.
Markets were on edge as events in Europe undermined optimism about the debt crisis deal that European leaders agreed last week to shore up the continent's banks and prevent Greece from defaulting.
Greek Prime Minister George Papandreou on Monday said that his debt-strapped country will hold a referendum on whether to accept the European deal -- complicating an already elaborate implementation process.
"That puts everything in question. No longer do you have Greece backing it," said Andrew Sullivan, principal sales trader at Piper Jaffray in Hong Kong. "It is putting another level of uncertainty into it, and the markets don't like uncertainty."
Another troubling sign is that borrowing costs for Italy and Spain have increased, showing that traders remain worried about those countries' ability to pay their debts.
Confidence has also been shaken by the collapse of the brokerage house MF Global. The securities firm filed for bankruptcy protection after it was downgraded by ratings agencies for holding too much European debt.
Meanwhile, surveys showing China's manufacturing remained sluggish in October also weighed on investor sentiment. Hong Kong-listed shares of GOME Electrical Appliance Holdings, China's largest appliances retailer, plunged 7.8 percent. Anhui Conch Cement Co. fell 6.4 percent.
Qantas Airways rose 1.1 percent as the world's 10-largest airline took to the skies again after a debilitating series of strikes and subsequent staff lockout were halted by an Australian court.
Weak earnings weighed on some shares.
Japanese consumer electronics giant Panasonic Corp. tumbled 5.1 percent, a day after reporting a quarterly loss and projecting a huge annual loss due to slumping TV sales and a strong yen.
Australian retailer Harvey Norman fell 3.7 percent after the company reported a drop of almost 20 percent in pretax earnings in the three months to September.
Chinese automaker BYD, which is backed by billionaire investor Warren Buffet, rose by the daily limit of 10 percent. While the company's profit fell nearly 86 percent to 352.7 million yuan ($55.5 million) in January-September, it jumped nearly sixfold in the third-quarter from a very low base the year before, as sales were energized by the introduction of new models.
Wall Street tumbled Monday, with the Dow Jones industrial average spiraling down 2.3 percent to 11,955.01. The S&P 500 fell 2.5 percent to 1,253.30, and the Nasdaq composite fell 1.9 percent to 2,684.41.
In energy trading, benchmark crude for December delivery was down $1.75 at $91.44 a barrel in electronic trading on the New York Mercantile Exchange. The contract slipped 13 cents to settle at $93.19 in New York on Monday.
The euro fell to $1.3701 from $1.3924 late Monday in New York. The dollar rose slightly to 78.09 yen from 78.05 yen.
World leaders aim to revive global recovery
World leaders will try to understand how the global economy has swerved so horribly off its recovery track when they gather this week for a summit that will see a curious inversion of roles from previous meetings: Europeans will be asking developing countries in Asia and South America for financial help.
Though signs of an alarming slowdown in growth are everywhere -- the U.S. is not creating enough jobs and China is struggling to cool down inflation without triggering a credit crunch -- the old continent's debt problems will take top billing at the summit.
As head of France's year-long presidency of the Group of 20 meetings, Nicolas Sarkozy will scramble to show his peers gathered at the chic French Riviera resort of Cannes that Europe has gotten a grip on its debt crisis with last week's grand plan to save the euro.
One of the main ideas behind creating the G-20 three years ago was to expand global economic decision-making beyond the North Atlantic axis to include more diverse countries. But this year's G-20 summit, to be held Thursday and Friday, is all about old Europe. And instead of Europeans offering aid to struggling nations, as occurred in the past, now the Europeans are asking developing nations with big cash reserves -- like China -- for financial help.
Eurozone leaders, for their part, have preventively dodged questions on details of their latest euro rescue operation, saying last week that the mechanics won't be settled until early December -- almost six months after their previous plan was announced and then left to slowly go past its expiration date.
European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy last week pledged to carry out the new measures "rigorously and in a timely manner."
"We are confident that they will contribute to the swift resolution of the crisis," Barroso and Van Rompuy wrote in a joint letter to the G-20 leaders.
"Swift" may not be the right word after two years of faltering half-steps and missed opportunities. Meanwhile, European leaders must use the face time with colleagues from Brazil, Russia, India, China and beyond to drum up interest in the euro440 billion ($616 billion) European bailout fund. Increasing the fund's firepower by getting cash-rich developing world countries to invest in bonds insured by the fund is key to the European plan's success.
If recent comments by the head of China's sovereign wealth fund are anything to go by, convincing outsiders of Europe's investment potential will be a hard sell.
Jin Liqun, chairman of the board of supervisors of the China Investment Corporation said "the root cause" of Europe's trouble is "the overburdened welfare ... the sloth-inducing, indolence-inducing labor laws," he said. "People need to work harder. They need to work longer," Liqun said.
China's president also suggested the Europeans should not count on being bailed out by China's record foreign currency reserves.
Speaking during an official visit to Austria, President Hu Jintao told reporters Monday his country is closely following the EU's economic development.
"We are convinced that Europe has the wisdom and the competence to conquer its momentary difficulties," he said.
Beijing so far has promised to help only by continuing business as usual, trading with Europe and stockpiling some of China's multibillion-dollar trade surpluses in the safest European government bonds.
Serving as a gloomy backdrop to the Cannes summit are new data that show Europe's economy will stagnate or even contract next year.
In comments timed to coincide with the G-20 summit, the Organization for Economic Cooperation and Development said "patches of mild negative growth" are likely in the eurozone in 2012.
It said economic growth in the eurozone will stall at 0.3 percent next year, after just 1.6 percent growth this year. That's down from the OECD's forecast in May of 2 percent growth in the eurozone in 2012.
The Paris-based OECD also implored the EU to provide more details on how its plan to rescue the euro will work.
The OECD said much of the blame for the current economic slowdown was due to "a generalized loss of confidence in the ability of policymakers to put in place appropriate responses."
That reads as a slap to European leaders who've attempted for nearly two years to get a grip on the widening sovereign debt crisis beginning in Greece that has drawn in Ireland and Portugal and now threatens Italy and Spain.
Eurozone crisis measures unveiled last week "go in the right direction," the OECD said, but it called on European leaders to provide more specifics on how their plan will work.
While this week's G-20 summit is expected to focus heavily on financial issues, it is also likely to touch on topics such as coordinating climate change policies and maintaining energy supplies as well as security issues.
Though signs of an alarming slowdown in growth are everywhere -- the U.S. is not creating enough jobs and China is struggling to cool down inflation without triggering a credit crunch -- the old continent's debt problems will take top billing at the summit.
As head of France's year-long presidency of the Group of 20 meetings, Nicolas Sarkozy will scramble to show his peers gathered at the chic French Riviera resort of Cannes that Europe has gotten a grip on its debt crisis with last week's grand plan to save the euro.
One of the main ideas behind creating the G-20 three years ago was to expand global economic decision-making beyond the North Atlantic axis to include more diverse countries. But this year's G-20 summit, to be held Thursday and Friday, is all about old Europe. And instead of Europeans offering aid to struggling nations, as occurred in the past, now the Europeans are asking developing nations with big cash reserves -- like China -- for financial help.
Eurozone leaders, for their part, have preventively dodged questions on details of their latest euro rescue operation, saying last week that the mechanics won't be settled until early December -- almost six months after their previous plan was announced and then left to slowly go past its expiration date.
European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy last week pledged to carry out the new measures "rigorously and in a timely manner."
"We are confident that they will contribute to the swift resolution of the crisis," Barroso and Van Rompuy wrote in a joint letter to the G-20 leaders.
"Swift" may not be the right word after two years of faltering half-steps and missed opportunities. Meanwhile, European leaders must use the face time with colleagues from Brazil, Russia, India, China and beyond to drum up interest in the euro440 billion ($616 billion) European bailout fund. Increasing the fund's firepower by getting cash-rich developing world countries to invest in bonds insured by the fund is key to the European plan's success.
If recent comments by the head of China's sovereign wealth fund are anything to go by, convincing outsiders of Europe's investment potential will be a hard sell.
Jin Liqun, chairman of the board of supervisors of the China Investment Corporation said "the root cause" of Europe's trouble is "the overburdened welfare ... the sloth-inducing, indolence-inducing labor laws," he said. "People need to work harder. They need to work longer," Liqun said.
China's president also suggested the Europeans should not count on being bailed out by China's record foreign currency reserves.
Speaking during an official visit to Austria, President Hu Jintao told reporters Monday his country is closely following the EU's economic development.
"We are convinced that Europe has the wisdom and the competence to conquer its momentary difficulties," he said.
Beijing so far has promised to help only by continuing business as usual, trading with Europe and stockpiling some of China's multibillion-dollar trade surpluses in the safest European government bonds.
Serving as a gloomy backdrop to the Cannes summit are new data that show Europe's economy will stagnate or even contract next year.
In comments timed to coincide with the G-20 summit, the Organization for Economic Cooperation and Development said "patches of mild negative growth" are likely in the eurozone in 2012.
It said economic growth in the eurozone will stall at 0.3 percent next year, after just 1.6 percent growth this year. That's down from the OECD's forecast in May of 2 percent growth in the eurozone in 2012.
The Paris-based OECD also implored the EU to provide more details on how its plan to rescue the euro will work.
The OECD said much of the blame for the current economic slowdown was due to "a generalized loss of confidence in the ability of policymakers to put in place appropriate responses."
That reads as a slap to European leaders who've attempted for nearly two years to get a grip on the widening sovereign debt crisis beginning in Greece that has drawn in Ireland and Portugal and now threatens Italy and Spain.
Eurozone crisis measures unveiled last week "go in the right direction," the OECD said, but it called on European leaders to provide more specifics on how their plan will work.
While this week's G-20 summit is expected to focus heavily on financial issues, it is also likely to touch on topics such as coordinating climate change policies and maintaining energy supplies as well as security issues.
Oil near $92 as faith in Europe debt plan fades
Oil prices fell to near $92 a barrel Tuesday in Asia as the initial optimism about Europe's plan to resolve its debt crisis faded.
Benchmark crude for December delivery was down $1.07 at $92.12 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract slipped 13 cents to settle at $93.19 in New York on Monday.
Brent crude was down 29 cents at $109.27 a barrel on the ICE Futures Exchange in London.
Crude has jumped from $75 on October 4 amid expectations of a European plan to contain Greece's debt crisis.
Last week, EU policymakers agreed to lower Greece's debt level over the next decade and also asked bondholders to accept 50 percent losses on their Greek debt, sending stocks and commodities higher. But the plan lacked key details and investors are worried weak economic growth in Europe could undermine fiscal and debt targets.
"Last week's initial market response to the eurozone plan appeared outsized in relation to the limited details that accompanied the announcement and as a result, the markets are retracing much of last week's price up spike," energy consultant Ritterbusch and Associates said in a report.
Traders were also spooked by the bankruptcy of MF Global, a securities firm headed by former New Jersey Gov. Jon Corzine. Rating agencies downgraded the company last week, worried that it holds too much European debt.
In other Nymex trading, heating oil fell 2.3 cents to $3.04 per gallon and gasoline futures slid 2.2 cents to $2.58 per gallon. Natural gas gained 0.5 cent to $3.94 per 1,000 cubic feet.
Benchmark crude for December delivery was down $1.07 at $92.12 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract slipped 13 cents to settle at $93.19 in New York on Monday.
Brent crude was down 29 cents at $109.27 a barrel on the ICE Futures Exchange in London.
Crude has jumped from $75 on October 4 amid expectations of a European plan to contain Greece's debt crisis.
Last week, EU policymakers agreed to lower Greece's debt level over the next decade and also asked bondholders to accept 50 percent losses on their Greek debt, sending stocks and commodities higher. But the plan lacked key details and investors are worried weak economic growth in Europe could undermine fiscal and debt targets.
"Last week's initial market response to the eurozone plan appeared outsized in relation to the limited details that accompanied the announcement and as a result, the markets are retracing much of last week's price up spike," energy consultant Ritterbusch and Associates said in a report.
Traders were also spooked by the bankruptcy of MF Global, a securities firm headed by former New Jersey Gov. Jon Corzine. Rating agencies downgraded the company last week, worried that it holds too much European debt.
In other Nymex trading, heating oil fell 2.3 cents to $3.04 per gallon and gasoline futures slid 2.2 cents to $2.58 per gallon. Natural gas gained 0.5 cent to $3.94 per 1,000 cubic feet.
Despite debt deal, Europe may slide into recession
Europe may be able to dodge a financial meltdown. It may not be able to avoid a recession.
The deal European leaders reached last week is intended to defuse the continent's debt crisis and avert a panic like the one that nearly toppled the U.S. financial system in 2008.
Skeptics caution that the agreement isn't a long-term solution to the debt crisis. Even if it were, the pact did nothing about other threats to Europe's economy: deep cuts by over-indebted governments, high unemployment, stingier bank lending and declining exports.
Many economists think Europe is nearing a recession that would harm the United States, China and other countries whose economies depend on the continent. The problems are illustrated by The Associated Press' latest quarterly Global Economy Tracker, which monitors data in 30 countries:
-- Four nations -- Italy, Spain, Britain and Norway -- reported annualized growth of less 1 percent in the April-June quarter. Economies generally must grow at least 2.5 percent a year just to keep unemployment from rising.
-- Spain had the highest unemployment among countries the AP tracked: 21.2 percent in August. It was followed by Poland's 9.4 percent.
--Greece and Italy were buckling under the weight of government debt. In Greece, those debts equaled 161 percent of national output in the January-March quarter, second to Japan's 244 percent. Italy's government debt equaled 113 percent.
Financial markets have been spooked by fears that Greece and perhaps larger countries, like Italy, would default on their debts. Banks would be stuck with huge losses on their government bond holdings.
European banks agreed last week to take a 50 percent loss on their Greek bonds. They will also set aside more money to cushion against future losses. In addition, eurozone leaders hope to strengthen their bailout fund to keep the crisis from spreading to bigger countries.
Financial markets roared their approval.
Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics, says the deal helped ease fears of a catastrophe.
"We're not going to have a disorderly Greek default," he says. "We're also much less likely to have a large European bank suddenly collapse."
But analysts noted the paucity of details, wondered how many banks would adopt a voluntary 50 percent write-down on Greek bonds and questioned where the money for the enlarged bailout fund would come from. European leaders last week approached China for financial help.
Kirkegaard expects the continent to slip into a mild recession late this year or early next, though its strongest economy, Germany, may escape a downturn.
Economic growth in the 17 countries that use the euro will slow to 0.3 percent next year from 1.6 percent this year, the Organization for Economic Cooperation and Development estimated Monday. Some European economies may stop growing altogether, the organization of wealthy nations warned.
One reason for the pessimism: Smaller countries, particularly Greece, Ireland and Portugal, are slashing spending. The bigger ones are raising taxes and also cutting spending.
Italy, Europe's No. 3 economy, is carrying out a $76 billion package of spending cuts and tax increases to try to convince bond investors it won't default on its debt. Britain has imposed an austerity program that's stalled growth.
The debt crisis has shaken the confidence of those whose spending must fuel growth. Business executives and consumers seem less likely to step up purchases for new factories or SUVs.
And the prospect of having to absorb huge losses on their bond holdings has caused banks to retrench. The European Central Bank's October lending survey showed that banks cut net credit to businesses by 16 percent in the July-September quarter. The 124 surveyed banks expected even tighter credit as the year ends.
Automaker Daimler AG said last week that it saw little prospect of significant growth in Western Europe. Its French competitor Peugeot Citroen SA said it would cut 6,000 jobs because of flat demand in Europe.
The weakness has already caused pain across the Atlantic.
Jeff Fettig, CEO of U.S. appliance maker Whirlpool, said Friday that demand is tumbling in parts of Europe. Whirlpool cut its earnings estimates and said it would lay off 5,000 in North America and Europe.
The United States exported $240 billion in goods to the European Union last year -- more than twice its export total to China. U.S. companies have also sunk $2.2 trillion into long-term investments in Europe, such as factories and acquired companies. No other region comes close to drawing so much U.S. investment.
Germany has 2,200 American-owned companies. General Motors and Ford Motor Co. have divisions based there. ExxonMobil Corp., ConocoPhillips, GE, IBM, Hewlett-Packard Co., Procter & Gamble Co. and Dow Chemical Co., all generate billions in annual European sales.
Exports have accounted for 47 percent of growth since the Great Recession ended in mid-2009. That's more than twice their share after the previous three recessions.
"It is the reason Europe matters," says Steve Blitz, senior economist at ITG Investment Research.
The deal European leaders reached last week is intended to defuse the continent's debt crisis and avert a panic like the one that nearly toppled the U.S. financial system in 2008.
Skeptics caution that the agreement isn't a long-term solution to the debt crisis. Even if it were, the pact did nothing about other threats to Europe's economy: deep cuts by over-indebted governments, high unemployment, stingier bank lending and declining exports.
Many economists think Europe is nearing a recession that would harm the United States, China and other countries whose economies depend on the continent. The problems are illustrated by The Associated Press' latest quarterly Global Economy Tracker, which monitors data in 30 countries:
-- Four nations -- Italy, Spain, Britain and Norway -- reported annualized growth of less 1 percent in the April-June quarter. Economies generally must grow at least 2.5 percent a year just to keep unemployment from rising.
-- Spain had the highest unemployment among countries the AP tracked: 21.2 percent in August. It was followed by Poland's 9.4 percent.
--Greece and Italy were buckling under the weight of government debt. In Greece, those debts equaled 161 percent of national output in the January-March quarter, second to Japan's 244 percent. Italy's government debt equaled 113 percent.
Financial markets have been spooked by fears that Greece and perhaps larger countries, like Italy, would default on their debts. Banks would be stuck with huge losses on their government bond holdings.
European banks agreed last week to take a 50 percent loss on their Greek bonds. They will also set aside more money to cushion against future losses. In addition, eurozone leaders hope to strengthen their bailout fund to keep the crisis from spreading to bigger countries.
Financial markets roared their approval.
Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics, says the deal helped ease fears of a catastrophe.
"We're not going to have a disorderly Greek default," he says. "We're also much less likely to have a large European bank suddenly collapse."
But analysts noted the paucity of details, wondered how many banks would adopt a voluntary 50 percent write-down on Greek bonds and questioned where the money for the enlarged bailout fund would come from. European leaders last week approached China for financial help.
Kirkegaard expects the continent to slip into a mild recession late this year or early next, though its strongest economy, Germany, may escape a downturn.
Economic growth in the 17 countries that use the euro will slow to 0.3 percent next year from 1.6 percent this year, the Organization for Economic Cooperation and Development estimated Monday. Some European economies may stop growing altogether, the organization of wealthy nations warned.
One reason for the pessimism: Smaller countries, particularly Greece, Ireland and Portugal, are slashing spending. The bigger ones are raising taxes and also cutting spending.
Italy, Europe's No. 3 economy, is carrying out a $76 billion package of spending cuts and tax increases to try to convince bond investors it won't default on its debt. Britain has imposed an austerity program that's stalled growth.
The debt crisis has shaken the confidence of those whose spending must fuel growth. Business executives and consumers seem less likely to step up purchases for new factories or SUVs.
And the prospect of having to absorb huge losses on their bond holdings has caused banks to retrench. The European Central Bank's October lending survey showed that banks cut net credit to businesses by 16 percent in the July-September quarter. The 124 surveyed banks expected even tighter credit as the year ends.
Automaker Daimler AG said last week that it saw little prospect of significant growth in Western Europe. Its French competitor Peugeot Citroen SA said it would cut 6,000 jobs because of flat demand in Europe.
The weakness has already caused pain across the Atlantic.
Jeff Fettig, CEO of U.S. appliance maker Whirlpool, said Friday that demand is tumbling in parts of Europe. Whirlpool cut its earnings estimates and said it would lay off 5,000 in North America and Europe.
The United States exported $240 billion in goods to the European Union last year -- more than twice its export total to China. U.S. companies have also sunk $2.2 trillion into long-term investments in Europe, such as factories and acquired companies. No other region comes close to drawing so much U.S. investment.
Germany has 2,200 American-owned companies. General Motors and Ford Motor Co. have divisions based there. ExxonMobil Corp., ConocoPhillips, GE, IBM, Hewlett-Packard Co., Procter & Gamble Co. and Dow Chemical Co., all generate billions in annual European sales.
Exports have accounted for 47 percent of growth since the Great Recession ended in mid-2009. That's more than twice their share after the previous three recessions.
"It is the reason Europe matters," says Steve Blitz, senior economist at ITG Investment Research.
World economy needs China to slow growth gradually
China's high-flying economy is starting to lose altitude. The big question is whether the world's economic superstar will shrink gradually -- or so fast that it harms a fragile global economy.
China's comedown is being engineered by its policymakers. They want to slow expansion just enough to cool inflation without sapping job growth.
It's a delicate task.
"Nobody can say with any confidence" if they'll succeed, says Barry Eichengreen, an economics professor at the University of California, Berkeley.
China's explosive growth remains the envy of developed nations like the United States. It grew faster than any other major economy in the April-June quarter, according to The Associated Press' latest quarterly Global Economy Tracker. Only Argentina's much smaller economy matched China's 9.5 percent annual growth rate.
By contrast, the U.S. economy grew at a 1.3 percent rate in the April-June quarter, before expanding 2.5 percent in the July-September period.
The AP's Global Economy Tracker monitors economic and financial data in 30 countries representing more than 80 percent of global output.
Economists worry that China's economy could suffer what they call a "hard landing." They fear that a sudden plunge in China's growth would harm the economies of the United States, Europe and small countries that need China to buy their coal, copper and other raw materials.
That threat comes as the United States is still struggling to recover from the Great Recession of 2007-2009. And an agreement last week to ease Europe's debt crisis might not prevent the continent from sliding back into a recession that would ripple through the United States and other countries.
When surveyed this year by the Society of Actuaries, corporate risk managers in the United States, Canada and elsewhere said a slowdown in China posed the greatest threat to their business.
A hard landing wouldn't just squeeze U.S. and European exporters. It could also destabilize Chinese society. And it could escalate global trade tensions.
Hampered by high inflation and declining exports, China's growth is expected to decelerate from 10.3 percent last year to 9.5 percent in 2011 and 9 percent in 2012, according to the International Monetary Fund. The IMF expects the global economy to grow 4 percent this year.
Developing countries emerged almost unscathed from the Great Recession. They're now growing much faster than rich countries. According to the AP's global tracker:
--The three fastest in the April-June quarter were China (a 9.5 percent annual growth rate), Argentina (9.5 percent) and Indonesia (6.5 percent).
--The laggards are from the industrialized world -- Japan (down 1.1 percent), Norway (up 0.3 percent) and Britain (up 0.6 percent).
--Growth is slowing worldwide. It weakened from a year earlier in 19 of 26 countries that reported April-June data.
China's gaudy growth doesn't mean much to Xie Jun, who runs a factory in the southern Chinese boomtown of Dongguan. He's enduring a tough year.
His company makes and exports headphones, cell phones and computer accessories. It's paying 30 percent to 50 percent more this year for chemicals, fuel and other raw materials. Labor costs have nearly doubled.
Xie's customers are reducing orders, forcing him to lay off more than 10 percent of his staff at Dongguan Jincai Real Co.
"I just feel hopeless," Xie, 45, says. "It's hard to say if it will get any better next year."
China will likely account for nearly a third of global growth this year.
Exporters depend on China's demand for raw materials and consumer goods. Mines in Australia and Chile supply it with coal, copper and iron ore. General Motors sells more vehicles in China than anywhere else. China was the No. 3 destination for U.S. merchandise exports last year, behind Canada and Mexico.
China's economy must expand 8 percent a year just to keep enough people employed to "maintain its social and political stability," economist Nouriel Roubini wrote in an August report.
Eswar Prasad, professor of global trade at Cornell University, puts the odds of a hard landing in China at 50-50.
Other analysts say they're confident China's policymakers will manage to reduce inflation gently without stifling growth too much.
The authorities "are well-aware of the risks," says Bob Mark, who runs Black Diamond Risk Enterprises and has advised Chinese banks. "It's not like they're going to be blindsided."
China's central bank has raised interest rates five times since mid-2010 to try to shrink inflation. Even so, consumer prices jumped 6.2 percent from August 2010 to August 2011. That was fifth-fastest among the 30 countries in the AP's global tracker. In the United States, by contrast, prices rose 3.8 percent in the 12 months ending in August.
News that China's growth dipped to 9.1 percent in the July-September quarter from 9.5 in the April-June period was met with relief by some economists. Rajat Nag, managing director of the Asian Development Bank, says it suggests a soft landing ahead.
Eichengreen notes that Beijing's communist authorities "have lots of levers they can pull, unlike U.S. authorities."
Senior bureaucrats in effect run the economy. The government owns most of the biggest companies and banks. It controls the currency.
Officials can, for example, suppress the value of their currency, the yuan. A lower yuan makes Chinese goods cheaper overseas. Washington has long accused Beijing of keeping its currency artificially low to give its exporters an unfair edge.
Chinese policymakers can also order state-owned banks to lend if the economy slows much. They can command local governments to keep workers busy building roads and bridges.
Roubini, a New York University economist who runs a research firm, thinks China's authorities will use all those tools to keep the economy growing briskly through 2012. They'll want to ensure a smooth transition next year, when a new president and premier will come to power.
But Roubini and others think the outlook after that is bleaker. He expects China's growth to sink to 5 percent or less after 2013.
At the heart of the problem is how China has stoked its expansion. It hasn't encouraged its consumers to drive the economy with their spending, as Americans do. Instead, it's juiced growth by pushing exports and investing in factories, roads, railways and real estate.
Such investments account for about half of China's output -- a wildly lopsided share that suggests it's investing in far more construction than it needs.
Behind the investment boom are bank loans that might never be repaid, because the projects aren't expected to throw off enough revenue.
The Great Recession worsened things for China. Exports fell. Beijing responded by passing a $600 billion stimulus program. Banks were pushed to lend. Local governments were nudged to invest heavily.
Roubini's research firm estimates that China has wasted $1.4 trillion since 2008 on investments that will likely end up as bad debts.
Optimists say China is merely planning for the future. A growing middle class will eventually occupy the new houses, ride the new trains, fly from the new airports and drive new cars on the new highways. The new factories will make goods to meet rising demand at home and abroad.
But demographics pose another problem. China is aging fast. Largely, that's because of population control policies that limit most families to one child. This year, 8.9 percent of Chinese were 65 or older. By 2021, 12.9 percent will be.
"A significant slowdown is coming because their labor force is aging," Eichengreen says. By 2015 or 2016, he says, China's growth could slow to 5 percent or 6 percent.
Economists have urged China to rely more on its consumers and less on exports and dubious investments. In Dongguan, factory owner Xie would agree.
"I am thinking about focusing more on the domestic market next year," he says. "At least we have 1.3 billion people. It is a big market."
AP Business Writer Joe McDonald in Beijing and AP researcher Fu Ting in Shanghai contributed to this report.
China's comedown is being engineered by its policymakers. They want to slow expansion just enough to cool inflation without sapping job growth.
It's a delicate task.
"Nobody can say with any confidence" if they'll succeed, says Barry Eichengreen, an economics professor at the University of California, Berkeley.
China's explosive growth remains the envy of developed nations like the United States. It grew faster than any other major economy in the April-June quarter, according to The Associated Press' latest quarterly Global Economy Tracker. Only Argentina's much smaller economy matched China's 9.5 percent annual growth rate.
By contrast, the U.S. economy grew at a 1.3 percent rate in the April-June quarter, before expanding 2.5 percent in the July-September period.
The AP's Global Economy Tracker monitors economic and financial data in 30 countries representing more than 80 percent of global output.
Economists worry that China's economy could suffer what they call a "hard landing." They fear that a sudden plunge in China's growth would harm the economies of the United States, Europe and small countries that need China to buy their coal, copper and other raw materials.
That threat comes as the United States is still struggling to recover from the Great Recession of 2007-2009. And an agreement last week to ease Europe's debt crisis might not prevent the continent from sliding back into a recession that would ripple through the United States and other countries.
When surveyed this year by the Society of Actuaries, corporate risk managers in the United States, Canada and elsewhere said a slowdown in China posed the greatest threat to their business.
A hard landing wouldn't just squeeze U.S. and European exporters. It could also destabilize Chinese society. And it could escalate global trade tensions.
Hampered by high inflation and declining exports, China's growth is expected to decelerate from 10.3 percent last year to 9.5 percent in 2011 and 9 percent in 2012, according to the International Monetary Fund. The IMF expects the global economy to grow 4 percent this year.
Developing countries emerged almost unscathed from the Great Recession. They're now growing much faster than rich countries. According to the AP's global tracker:
--The three fastest in the April-June quarter were China (a 9.5 percent annual growth rate), Argentina (9.5 percent) and Indonesia (6.5 percent).
--The laggards are from the industrialized world -- Japan (down 1.1 percent), Norway (up 0.3 percent) and Britain (up 0.6 percent).
--Growth is slowing worldwide. It weakened from a year earlier in 19 of 26 countries that reported April-June data.
China's gaudy growth doesn't mean much to Xie Jun, who runs a factory in the southern Chinese boomtown of Dongguan. He's enduring a tough year.
His company makes and exports headphones, cell phones and computer accessories. It's paying 30 percent to 50 percent more this year for chemicals, fuel and other raw materials. Labor costs have nearly doubled.
Xie's customers are reducing orders, forcing him to lay off more than 10 percent of his staff at Dongguan Jincai Real Co.
"I just feel hopeless," Xie, 45, says. "It's hard to say if it will get any better next year."
China will likely account for nearly a third of global growth this year.
Exporters depend on China's demand for raw materials and consumer goods. Mines in Australia and Chile supply it with coal, copper and iron ore. General Motors sells more vehicles in China than anywhere else. China was the No. 3 destination for U.S. merchandise exports last year, behind Canada and Mexico.
China's economy must expand 8 percent a year just to keep enough people employed to "maintain its social and political stability," economist Nouriel Roubini wrote in an August report.
Eswar Prasad, professor of global trade at Cornell University, puts the odds of a hard landing in China at 50-50.
Other analysts say they're confident China's policymakers will manage to reduce inflation gently without stifling growth too much.
The authorities "are well-aware of the risks," says Bob Mark, who runs Black Diamond Risk Enterprises and has advised Chinese banks. "It's not like they're going to be blindsided."
China's central bank has raised interest rates five times since mid-2010 to try to shrink inflation. Even so, consumer prices jumped 6.2 percent from August 2010 to August 2011. That was fifth-fastest among the 30 countries in the AP's global tracker. In the United States, by contrast, prices rose 3.8 percent in the 12 months ending in August.
News that China's growth dipped to 9.1 percent in the July-September quarter from 9.5 in the April-June period was met with relief by some economists. Rajat Nag, managing director of the Asian Development Bank, says it suggests a soft landing ahead.
Eichengreen notes that Beijing's communist authorities "have lots of levers they can pull, unlike U.S. authorities."
Senior bureaucrats in effect run the economy. The government owns most of the biggest companies and banks. It controls the currency.
Officials can, for example, suppress the value of their currency, the yuan. A lower yuan makes Chinese goods cheaper overseas. Washington has long accused Beijing of keeping its currency artificially low to give its exporters an unfair edge.
Chinese policymakers can also order state-owned banks to lend if the economy slows much. They can command local governments to keep workers busy building roads and bridges.
Roubini, a New York University economist who runs a research firm, thinks China's authorities will use all those tools to keep the economy growing briskly through 2012. They'll want to ensure a smooth transition next year, when a new president and premier will come to power.
But Roubini and others think the outlook after that is bleaker. He expects China's growth to sink to 5 percent or less after 2013.
At the heart of the problem is how China has stoked its expansion. It hasn't encouraged its consumers to drive the economy with their spending, as Americans do. Instead, it's juiced growth by pushing exports and investing in factories, roads, railways and real estate.
Such investments account for about half of China's output -- a wildly lopsided share that suggests it's investing in far more construction than it needs.
Behind the investment boom are bank loans that might never be repaid, because the projects aren't expected to throw off enough revenue.
The Great Recession worsened things for China. Exports fell. Beijing responded by passing a $600 billion stimulus program. Banks were pushed to lend. Local governments were nudged to invest heavily.
Roubini's research firm estimates that China has wasted $1.4 trillion since 2008 on investments that will likely end up as bad debts.
Optimists say China is merely planning for the future. A growing middle class will eventually occupy the new houses, ride the new trains, fly from the new airports and drive new cars on the new highways. The new factories will make goods to meet rising demand at home and abroad.
But demographics pose another problem. China is aging fast. Largely, that's because of population control policies that limit most families to one child. This year, 8.9 percent of Chinese were 65 or older. By 2021, 12.9 percent will be.
"A significant slowdown is coming because their labor force is aging," Eichengreen says. By 2015 or 2016, he says, China's growth could slow to 5 percent or 6 percent.
Economists have urged China to rely more on its consumers and less on exports and dubious investments. In Dongguan, factory owner Xie would agree.
"I am thinking about focusing more on the domestic market next year," he says. "At least we have 1.3 billion people. It is a big market."
AP Business Writer Joe McDonald in Beijing and AP researcher Fu Ting in Shanghai contributed to this report.
No major Fed moves expected as economy shows gains
That's likely to be the message from the Federal Reserve on Wednesday, when its two-day policy meeting ends. Few expect any bold new steps to be announced.
Fed policymakers likely want to gauge the impact of action they've taken recently to keep interest rates low. The Fed has breathing room because the economy and stock markets have strengthened enough to allay fears of another recession.
After their September meeting, the policymakers said they would shuffle the Fed's investment portfolio to try to further reduce long-term interest rates. And in their previous meeting in August, they had said they plan to keep short-term rates near zero until at least mid-2013 unless the economy improved.
"They know they are running out of tools, so they don't want to employ another one unless they have to," said David Wyss, former chief economist at Standard & Poor's.
At its last meeting, the Fed left open the possibility of taking additional action to try to help the economy. One option is to further explain the steps it has already taken and their purposes. Another would be to launch a third program of bond purchases.
But the Fed remains deeply divided over what, if any, action to take, which is another reason economists don't expect any major announcements this week.
The actions taken in August and September were adopted on 7-3 votes, the most dissents in nearly 20 years.
Three regional bank presidents -- Richard Fisher of Dallas, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis -- all voted no. They have expressed concerns that the Fed's policies could lead to high inflation later.
On the other hand, four policymakers are worried that the Fed might not be doing enough. Vice Chair Janet Yellen, Governor Daniel Tarullo, Chicago Fed President Charles Evans and New York Fed President William Dudley have said the economy is at risk and might need more support.
"I have never seen the Fed more deeply divided than it is at this moment," said David Jones, head of DMJ Advisors and the author of books on the Fed.
At its meeting in September, the Fed stopped short of expanding its portfolio of investments. Instead, it opted to shuffle $400 billion of its investments to try to lower long-term rates.
But two officials pushed for bolder action, according to minutes of the meeting. The members discussed more bond-buying. Some said it should remain an option.
A brighter outlook for the economy has given the Fed more room to wait. The economy grew at an annual rate of 2.5 percent in the July-September period -- the best quarterly performance in a year.
That's strong enough to show that the economy isn't about to slide into recession. Still, growth would have to be nearly twice as high -- consistently -- to make a major dent in the unemployment rate, which has been stuck at 9.1 percent for three straight months.
Stocks have rallied of late. Even after a drop of nearly 2.5 percent Monday, the Standard & Poor's 500 stock index in October notched its best one-month showing since December 1991.
European leaders have also announced a debt agreement that could help prevent a financial catastrophe on the continent. Still, even if it does, many analysts don't think Europe can avoid another recession.
Many economists think the Fed will hold off on new action until its December meeting or early next year. The next step could be further clarity on its interest-rate policy.
Evans has proposed that the Fed set benchmarks for raising rates. For example, it could agree not to raise short-term rates until unemployment fell below 7 percent or the outlook for inflation exceeded 3 percent. The unemployment rate has hovered around 9 percent for more than two years, and the Fed's inflation outlook is under 2 percent.
Yellen, who heads a Fed panel that is examining ways to improve the central bank's communications, says the idea should be examined. But she cautioned that such benchmarks could confuse investors.
She has suggested that the Fed could add further guidance when it provides its economic forecasts four times a year. The forecast offers estimates for growth, unemployment and inflation. It does not forecast interest rates.
Mark Zandi, chief economist at Moody's Analytics, said that adding a Fed forecast on the federal funds rate, its main policy lever, would reassure investors about when it might move interest rates.
"They have given investors more clarity about the timing of future rates, but including an actual forecast of when rates might change would help bring rates down further," Zandi said.
Fed policymakers likely want to gauge the impact of action they've taken recently to keep interest rates low. The Fed has breathing room because the economy and stock markets have strengthened enough to allay fears of another recession.
After their September meeting, the policymakers said they would shuffle the Fed's investment portfolio to try to further reduce long-term interest rates. And in their previous meeting in August, they had said they plan to keep short-term rates near zero until at least mid-2013 unless the economy improved.
"They know they are running out of tools, so they don't want to employ another one unless they have to," said David Wyss, former chief economist at Standard & Poor's.
At its last meeting, the Fed left open the possibility of taking additional action to try to help the economy. One option is to further explain the steps it has already taken and their purposes. Another would be to launch a third program of bond purchases.
But the Fed remains deeply divided over what, if any, action to take, which is another reason economists don't expect any major announcements this week.
The actions taken in August and September were adopted on 7-3 votes, the most dissents in nearly 20 years.
Three regional bank presidents -- Richard Fisher of Dallas, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis -- all voted no. They have expressed concerns that the Fed's policies could lead to high inflation later.
On the other hand, four policymakers are worried that the Fed might not be doing enough. Vice Chair Janet Yellen, Governor Daniel Tarullo, Chicago Fed President Charles Evans and New York Fed President William Dudley have said the economy is at risk and might need more support.
"I have never seen the Fed more deeply divided than it is at this moment," said David Jones, head of DMJ Advisors and the author of books on the Fed.
At its meeting in September, the Fed stopped short of expanding its portfolio of investments. Instead, it opted to shuffle $400 billion of its investments to try to lower long-term rates.
But two officials pushed for bolder action, according to minutes of the meeting. The members discussed more bond-buying. Some said it should remain an option.
A brighter outlook for the economy has given the Fed more room to wait. The economy grew at an annual rate of 2.5 percent in the July-September period -- the best quarterly performance in a year.
That's strong enough to show that the economy isn't about to slide into recession. Still, growth would have to be nearly twice as high -- consistently -- to make a major dent in the unemployment rate, which has been stuck at 9.1 percent for three straight months.
Stocks have rallied of late. Even after a drop of nearly 2.5 percent Monday, the Standard & Poor's 500 stock index in October notched its best one-month showing since December 1991.
European leaders have also announced a debt agreement that could help prevent a financial catastrophe on the continent. Still, even if it does, many analysts don't think Europe can avoid another recession.
Many economists think the Fed will hold off on new action until its December meeting or early next year. The next step could be further clarity on its interest-rate policy.
Evans has proposed that the Fed set benchmarks for raising rates. For example, it could agree not to raise short-term rates until unemployment fell below 7 percent or the outlook for inflation exceeded 3 percent. The unemployment rate has hovered around 9 percent for more than two years, and the Fed's inflation outlook is under 2 percent.
Yellen, who heads a Fed panel that is examining ways to improve the central bank's communications, says the idea should be examined. But she cautioned that such benchmarks could confuse investors.
She has suggested that the Fed could add further guidance when it provides its economic forecasts four times a year. The forecast offers estimates for growth, unemployment and inflation. It does not forecast interest rates.
Mark Zandi, chief economist at Moody's Analytics, said that adding a Fed forecast on the federal funds rate, its main policy lever, would reassure investors about when it might move interest rates.
"They have given investors more clarity about the timing of future rates, but including an actual forecast of when rates might change would help bring rates down further," Zandi said.
Subscribe to:
Posts (Atom)