As Wall Street struggled to keep its head above water yesterday, following its precipitous slide last week and a markets decline worldwide, the Bush administration tried to talk up the prospect of a US economic recovery based on tax rebates to consumers.
The shock news on Friday that US unemployment had risen in August from 4.5 per cent to 4.9 per cent seems to have acted as a "wake-up call" to the White House, according to analysts, and the Bush Treasury team is now looking at further tax reductions in the form of capital gains and payroll tax cuts.
White House economic adviser Mr Glenn Hubbard said yesterday that, while risks remained, the administration continued to be optimistic that tax rebates from President George W Bush's $40 billion (€44.5 billion) refund scheme would lead to "fairly robust" economic growth in the final quarter of 2001.
"Internally, we anticipate that the consumption effect of this initial piece will be spread over the August to November period," Mr Hubbard said of the tax rebate in a speech to the National Association for Business Economics.
So far there has been no hard evidence that the tax rebate cheques, which started arriving in US households in August, have had an effect on consumer spending or confidence. Both have fallen in the last week.
Mr Hubbard, chairman of the White House Council of Economic Advisers, said the administration's projections last month for 3.2 per cent economic growth in 2002 were reasonable but a number of things might go wrong.
"One would be weakness overseas, in the foreign sector. Another would be consumer weakness that's not anticipated." Japan's economic situation was "dire" he said and Japan may be underestimating the banking system's bad loan problem.
Stocks dipped in and out of negative territory in weak trading yesterday morning, with the Dow Jones Industrial Index dipping more than 100 points before a midday rally.
Investors are waiting for the pre-announcement season when companies say whether quarterly results will meet analysts' estimates.
The unemployment figures pushed the Standard & Poor's 500 index to nearly three-year lows on Friday, amid worries that consumers would cut back on their spending.
Yesterday brought more bleak news about jobs. Qwest Communications said its net loss for the second quarter widened to $3.31 billion and it would reduce its workforce by 4,000 jobs, cutting the total to 62,000 employees by the end of the first quarter of 2002. In addition, the company will eliminate 1,000 staff positions while adding 1,000 sales executives in its global business markets unit.
Consumer demand for personal computers hit a four-year low in July, according to a new survey, The survey of 2,500 US households by San Francisco research firm Odyssey found that only 7 per cent of respondents said that they were extremely likely to purchase a PC in the next six months, down from 10 per cent in January.
Separately, research firm International Data Corporation lowered its forecasts for consumer-PC purchases for 2001. It forecast that 44.1 million PCs would be bought around the world, almost 10 per cent below last year's figure. The surveys contradict Intel's forecast last week that PC sales showed some signs of returning to a normal seasonal pattern.
