Business News

Economic problems again

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by Peter Switzer

Yesterday I suggested sentiment might be turning and it was, but unfortunately the US economy isn’t turning and until it does we will be captives to the day-to-day ups and downs that have dominated Wall Street lately.

In summary, the Dow lost 144 points or 1.39 per cent to 10,271 while the broader S&P 500 gave up 1.7 per cent to finish at 1075.

More M&A

On the plus side, merger and acquisition activity is on the rise as evidenced by the BHP move on Potash this week. This reflects the fact that companies have repaired their balance sheets, cut costs and now have a pile of cash.

However, we need to see some progress on unemployment in the States to see the stock market really get excited in a sustained way. Dealogic says the M&A deals topped US$84.8 billion this week, which is huge on recent figures.

In the news

Having a look at the offending economic news and the Philadelphia Federal Reserve's survey of manufacturing activity dropped to –7.7, which was the worst result in over a year. A rise was tipped by economists.

Against this, the July leading indicators reading did rise in July by a slim 0.1 per cent but it fell 0.3 per cent in June, so there was some improvement, though not much.

The worst news was that jobless benefits claims for first-timers went up by 12,000 to 500,000, and this is the highest level in nine months.

If this ordinary news persists the US government might have to seriously consider extending the Bush tax cuts.

Clearly, we’re in a wait-and-see game until the US economy starts creating jobs again.

For advice you can trust, contact Switzer Financial Services.

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Published on: Friday, August 20, 2010