Economic Expansion Ends; Jobless Rate Up
The longest economic expansion in American history officially has come to an end and signals of a recession are growing stronger.
The nation’s gross domestic product shrank in the third quarter at a 0.4% annual rate. That was the first contraction since 1993.
Meanwhile, Americans cut their spending 1.8% in September, double what experts had expected, and manufacturing was in its deepest slump since the 1990-1991 recession.
The fourth quarter started out poorly as well as the unemployment rate in October jumped to 5.4%, the biggest one-month jump in more than 21 years. The 415,000 jobs eliminated during the month represented the biggest cut in payrolls since May 1980.
Many say the already weakened U.S. economy was pushed over the edge by the Sept. 11 terrorist attacks.
U.S., Microsoft Reach Settlement
The Justice Department has tentatively agreed to end its 3-year-old antitrust lawsuit against Microsoft Corp. But 18 states that had joined the historic federal case are refusing to endorse the government’s proposed settlement.
The government and the Redmond, Wash.-based company have asked a judge to approve the settlement, which would set new rules for the nation’s hard-hit technology industry.
The states could decide to accept the agreement, seek modifications or challenge it in court and pursue the case without the Justice Department.
The proposed deal would require Microsoft to give independent monitors full access to its books and plans for five years to ensure compliance and to provide information to help rivals make products compatible with its dominant Windows operating software.
GM Deal to Create New Pay TV Giant
Ending a year-long effort to sell its Hughes Electronics unit, General Motors Corp. agreed to a $25-billion stock and cash deal with a smaller satellite TV provider, EchoStar Communications.
But the transaction immediately prompted tough antitrust questions from members of Congress, business rivals, consumer advocates and even the investing public, because it would create a near-monopoly in satellite TV services. Hughes operates DirecTV.
Washington regulators are likely to take a year to review the antitrust implications of the deal, which could rewrite the rules of competition for pay-television services for the foreseeable future. Opponents are likely to use the lengthy review to agitate against it.
Executives at Rupert Murdoch’s News Corp., spurned in the drawn-out takeover battle for Hughes, continued working behind the scenes in Washington in an effort to shift sentiment against the merger.
Treasury to End Sale of 30-Year Bonds
The U.S. Treasury stunned financial markets by announcing it will halt new sales of 30-year bonds, a move that triggered a near-record plunge in long-term interest rates that should help boost the struggling economy.
The unexpected move should translate into lower long-term rates that will add further stimulus to key sectors of the economy, particularly housing and business investment in new plant and equipment, analysts said.
“This puts money right into the pockets of consumers,” said Dave MacEwen, chief investment officer for fixed-income at American Century Funds in Mountain View, Calif. “And corporations can issue new bonds at even lower rates,” he added.
The Treasury action comes as the Bush administration has expressed frustration over its inability to get the Senate to agree to the economic-stimulus package passed by the House.
Bill Ford Takes Over Ford Motor Co.
William Clay Ford Jr., 44, took control at beleaguered Ford Motor Co., the auto maker founded by his legendary great-grandfather, Henry, in 1903.
The company pushed out controversial Chief Executive Jacques Nasser, and the younger Ford, nonexecutive chairman since 1999, took over his job as well. The change put a family member at the helm of the auto maker for the first time in 22 years.
The world’s No. 2 auto maker has been beset by problems in the last year, including declines in profit, share price and market share; recalls of key vehicles; and losses associated with the continuing Bridgestone/Firestone Inc. tire mess.
The biggest challenge for the young new CEO is to persuade employees, dealers and shareholders that he is, indeed, the right Ford in their future.
Airlines Report Losses; Travel Plateaus
The devastating impact of the Sept. 11 attacks on the airline industry was starkly evident as the carriers reported their third-quarter results. The industry reported net losses totaling about $2.5 billion, led by the $1.16-billion loss at United Airlines parent UAL Corp. The red ink would have been much higher except for the $2.5 billion that the airlines already have received from the federal bailout package.
UAL also ousted Chairman and Chief Executive James Goodwin. He was replaced by board member James Creighton, chairman of Unocal Corp.
Meanwhile, UAL and its machinists union returned to the bargaining table, the first significant airline labor negotiations since the industry went into a tailspin in September.
The rebound in air travel has reached a plateau, and about 1.5 million fewer people are flying domestically each week than before the attacks. The Bush administration is eager to get an airline-security bill signed to help restore confidence in the air travel system. But a House bill passed last week, which gives the White House the option of using either private contractors or government workers as airport screeners, is at odds with a Senate bill requiring 28,000 new federal employees in charge of screening.
Dismal Economic News Sends Stocks Lower
Stock prices slid as investors were buried under an avalanche of dismal economic news.
For the week, the Dow Jones industrial average lost 2.3%, the Standard & Poor’s 500 index slid 1.6% and the technology-laden Nasdaq composite index slipped 1.3%.
The only bright spot was the bond market, which rallied strongly after the Treasury’s surprise announcement that it would stop issuing 30-year bonds.
Toyota Baja Bound, Mexican Officials Say
Mexican officials say they have landed a big industrial fish: Toyota Motor Corp. has decided to build an auto assembly plant near the California border in either Mexicali, Tijuana or Ensenada.
The factory’s first phase is to cost $250 million to build and is expected to create 1,000 jobs.
The facility will expand over time from doing subassembly of “kits” to be sent to other North American assembly plants, to becoming a self-contained manufacturing complex, ultimately attracting as much as $1 billion in Japanese investment, officials said.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Leveling Off
Air travel gradually rebounded after Sept. 11 but is now leveling off, and passenger traffic is still about 27% below year-ago levels:
*--*
Passengers on domestic flights Load Week (in millions) factor* Oct. 22-28 7.5 65% Oct. 15-21 7.6 67 Oct. 8-14 7.5 67 Oct. 1-7 7.0 62 Sept. 24-30 6.0 52 Sept. 17-23 5.0 44 Sept. 10-16 N/A N/A Sept. 3-9 9.0 67**
*--*
* Load factor is the percentage of available seats filled with passengers.
**Before airlines slashed their schedules in response to Sept. 11.
N/A Not applicable due to two-day shutdown of U.S. air travel.
Source: Air Transport Assn. *
See Monday’s Business section for a preview of this week’s business and economic events.
