NBK upbeat on US economy

As we approach the end of an eventful year, the US is racing to control potential damage from the mad-cow disease that has been confirmed in the state of Washington.

The potential financial implication of a serious outbreak of the disease could run into billions of dollars. Already several nations have banned the import of American beef, and many others are watching the situation closely.

A raised level of terror alert has also been imposed on the nation last week. This decision could only hurt the economy because it introduces uncertainty. The holiday season has so far failed to enthuse shoppers, and this is also worrying retailers across the nation.

The steady and continuing rally in the price of gold has also caused some officials to express concern. The Conference Board, the influential U.S. think-tank for business, has warned that rising gold prices and the falling dollar signal that 'the next couple of years could be a rocky ride' for business'.

Although the coming year is likely to be one of the best in terms of growth rates in 20 years, it should not be interpreted as an 'all is well' signal. The watchword for business is caution and control because most still expect the ride to be rocky.

The government has left unrevised its estimate of economic growth in the third quarter, but said consumer spending was stronger than earlier thought. Gross Domestic Product, or GDP, is a measure of all the goods and services produced in the country.

Third quarter GDP in the U.S. has increased at an 8.2% annual rate. Growth has been boosted by consumer spending, by business investment in equipment and software, by investment in housing and by exports.

Consumer spending remains a key component of the GDP because it accounts for two-thirds of economic activity. Spending by consumers rose at a 6.9% annual rate in the third quarter, driven by federal government tax cuts and low interest rates. Consumer spending increased for both durable and non-durable goods.

However, durable-goods orders in November unexpectedly posted their biggest drop in more than a year as the factory sector's recovery faltered.

Orders for durable-goods, or big-ticket items designed to last at least three years, dropped 3.1% to $180.1 billion. The decrease was the largest monthly decline since a 6% drop in September 2002. It should be borne in mind that the durable-goods orders data are notoriously volatile and subject to sharp revisions.

Other data have showed that the manufacturing sector is on the mend. The Institute for Supply Management's index of manufacturing activity in November posted its strongest reading since 1983, and U.S. industrial production showed its biggest gain in four years during the month. So it is perfectly possible for orders to bounce back in December.

Finally, let's look at the jobs market. The Labor Department has reported that the number of U.S. workers filing new claims for unemployment benefits decreased by 1000 last week to 353,000, a level consistent with an improving job market.

For nearly three months, new claims have been below the key level of 400,000, a figure generally consistent with stable overall employment.