Issue 248 of SOCIALIST REVIEW Published January 2001 Copyright © Socialist Review
Is the US economy heading full speed into recession? This is the question many economists and commentators are now asking following a wealth of data which shows increasing problems for the world's largest and most important economy.
In the time it took the US to work out who had won the election on 7 November, the seemingly unshakeable optimism surrounding the economy had been replaced by fear and apprehension. The latest figures for third quarter growth showed that the economy grew by just 2.2 percent year on year, under half the 5.6 percent of the second quarter. Indications for the fourth quarter are that growth may have fallen further. Alan Greenspan, the chairman of the US Federal Reserve, has warned that the threat of recession is now as great as that from rising inflation. Consumer confidence has plunged, stock markets have fallen and, most worrying for America's bosses, the manufacturing sector is shedding jobs at its fastest rate in ten years.
This was seen most clearly last month when LTV, the fourth biggest steel maker in the US, filed for bankruptcy with the possible loss of up to 50,000 jobs in the important industrial Midwest. In Chicago one of America's oldest retailers, Montgomery Ward, announced it is shutting up shop and liquidating its entire 250-store chain, and the major car producers are warning of overcapacity in the car market which will lead to more cutbacks and redundancies.
The effect on the world economy if the US does go into recession could be catastrophic. As the Financial Times reported, 'Those heavily dependent on the US market--such as Mexico, Canada and the export orientated economies of east Asia--would be harder hit. Also hard hit would be those with unresolved internal problems. Among the latter are Indonesia, Thailand and even South Korea' (2 January 2001). On top of this there are signs that Japan's faltering economy is facing further problems. The Financial Times goes on, '2001 will be the year of living interestingly. It may prove to be the year of living dangerously.'
The position of the new president, George W Bush, will be precarious. Nearly half the population did not bother to vote in last year's election, and Bush did not even get the majority of the popular vote. As the economy slides, and with redundancies kicking in, pressure will increase on Bush. Republicans are talking up the economy's problems now so they can put some of the blame Clinton.
The pressures will also be felt in Britain. Eddie George, governor of the Bank of England, said recently, 'It is still true that if America really sneezes we all catch cold. The latest data suggests [the US slowdown] may be sharper than we needed and sharper than is desirable for the world economy. That is one of the biggest uncertainties facing the UK economy.'
The decision by General Motors to shut down production at Luton is a sign that the overcapacity of the car market is having an impact here. And there have been warnings recently about the loss of other manufacturing jobs and a slowdown in the housing market. All of this means the bosses and the Labour government will face a rough time over the coming months, in the run-up to a general election. This makes the position of workers so much stronger. The posibility that General Motors workers may shut down their European production on 24 January in response to the cutbacks shows the mood for a fight is there. It is important that this mood is translated into a mass movement involving wider sections of the working class.