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US recession is now official - Views on News from Equitymaster
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  • Dec 2, 2008

    US recession is now official

    US is in a recession, confirms NBER
    Asian markets are deep in the red currently. This follows the mayhem witnessed in the US markets yesterday as the Dow Jones Industrial Index crashed by 7.7%. Stocks were hammered following official confirmation of recession in the US. As per the National Bureau of Economic Research (NBER), the US is in a recession since December 2007. And if the Federal Reserve’s views are anything to go by, the economic weakness will continue for some time despite the impact of the government’s efforts to get money flowing again.

    Benchmark indices in Hong Kong (down 4.5%), Japan (down 4.6%) and Korea (down 2.1%) are leading the pack of losers among Asian markets today.

    Worldwide unemployment is mounting
    While the recent terror attacks in Mumbai have left the country in a state of shock blocking out all else from the mind, the global recession has just gotten worse as can be evinced from the rising count of the unemployed. So far in the US, deepening recession has axed 1.2 m jobs and this is spilling over overseas as well. Further, with the labour data scheduled to be released this week, it is expected that the jobless rate in November will soar to a 15-year high of 6.8% and that employers will reduce payrolls by 320,000.

    But this gloomy picture is not restricted to the US alone. As reported on Bloomberg, globally, the jobless rate may rise above 7% by 2010 after remaining between 5% and 7% for two decades. Given increasing globalisation, the slowdown in the US has considerably hampered prospects in other nations as well. As was aptly summed up on Bloomberg, "The US once exported jobs. Now, it is exporting unemployment."

    Luxury hotels’ tryst with terrorism
    The days of just walking into a luxury hotel, sitting in their magnificent lounges or dining at some of the posh restaurants are probably over; for the time being at least. The vulnerability of five-star luxury hotels was amply demonstrated in the recent audacious terror attacks on Mumbai, when the both the Oberoi Trident and the iconic Taj Mahal Palace hotels ended up as prime targets of the terrorists.

    In the aftermath, while beefing up security seems like the most obvious solution, things are not as simple as they look. This was reiterated by Mr. Ratan Tata who despite having received warnings of likely attacks could only do so much. Attacks on luxury hotels have not been confined to India alone. The JW Marriott in Pakistan also bore the brunt of attacks this year. Hotels have a tough decision on their hands. Unlike airports where security is of the paramount importance and the inconvenience is something that passengers just have to deal with, security in hotels is a different ballgame altogether.

    Being the symbol of hospitality and comfort, additional security will only taint the luxurious experience of a five star hotel. But after the recent terror strikes, one will have to just brace oneself for an inconvenience, which while it is likely to be an irritant, will nevertheless ensure safety during the duration of stay.

    The dividend dampener
    The global financial turmoil and the consequent plunge in the stock markets is not something that investors are going to forget for a long, long time. And now to add insult to the injury, looks like they will be deprived of dividends too. In a desperate effort by the US companies to conserve cash amidst the crisis, dividends are disappearing at the fastest rate in 50 years.

    In fact, as reported on Bloomberg, 91 companies listed on the biggest US exchanges are reducing or suspending payouts to shareholders this month, the most since May 1958, when 113 companies slashed dividends. Ever since the unfolding of the credit crisis, profits have tumbled for a fifth straight quarter and companies are on their toes trying to preserve the much needed cash. Thus, unless and until the US economy turns around, investors will have to just brace themselves for some tough times ahead.



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